Accounting software facts for kids
Accounting software is a special computer program that helps businesses and people keep track of their money. It records all the money that comes in and goes out, like a digital notebook for finances. This software can help manage budgets, handle money in different currencies, manage employee paychecks (payroll), and even create reports to show how well a business is doing financially.
Computers have been used for accounting for a long time. At first, the software just did basic tasks. But now, it can do much more, like showing you your money situation right away. Since 2011, "cloud accounting software" has become popular. This means you can do all your accounting tasks online, from anywhere with internet access!
Contents
What Does Accounting Software Do?
Accounting software often has different parts, called "modules," that handle specific jobs. Think of them like different departments in a company, each with its own task.
Main Parts (Core Modules)
- Accounts receivable—This part tracks money that customers owe to the company.
- Accounts payable—This tracks bills the company needs to pay to others.
- General ledger—This is like the main "book" where all financial records are kept.
- Billing—This helps the company create bills (invoices) for its customers.
- Stock/inventory—This helps keep track of all the products a company has to sell.
- Purchase order—This is used when the company orders new products or supplies.
- Sales order—This records what customers have ordered from the company.
- Bookkeeping—This is where all money coming in and going out is recorded.
- Financial close management—This helps accounting teams check and adjust money records at the end of a certain time period, like a month or year.
Other Helpful Parts (Non-Core Modules)
- Debt collection—This helps track efforts to get money from customers who haven't paid their bills.
- Electronic payment processing—This handles payments made online or digitally.
- Expense—This is where employees record money they spent for business.
- Inquiries—This lets you look up information on the screen without changing anything.
- Payroll—This handles employee salaries, wages, and taxes.
- Reports—This prints out important financial information.
- Timesheet—This helps people like lawyers or consultants record the hours they work for clients.
- Purchase requisition—This is for making and tracking requests to buy things.
- Reconciliation—This compares records from different places to make sure they match.
- Journals—These are detailed records of financial transactions.
- Support for value added taxation—Helps with calculating certain taxes.
- Late payment reminders—Sends reminders to customers who are late paying.
- Bank feed integration—Connects directly to bank accounts to get information.
- Document attachment system—Allows you to attach documents to financial records.
- Document/Journal approval system—Helps get approval for financial documents.
Remember, different software companies might use slightly different names for these parts!
Setting Up the Software
Getting accounting software ready to use, called "implementation," can sometimes be a bigger job than just buying the software itself. For bigger businesses, the software is often sold through special companies that also help install it, set it up, and provide support. This means businesses might pay extra for these services.
But why go through all this? Accounting software offers many benefits! It helps businesses:
- Find information much faster.
- Make bank reconciliation (checking bank statements against company records) easier.
- Automatically prepare taxes like VAT or GST.
- See their financial situation in real-time, which means they know how much money they have right now!
Different Kinds of Accounting Software
Just like there are different kinds of cars for different needs, there are different kinds of accounting software for different users and businesses.
For Personal Use
This software is usually simple and made for individuals or families. It helps with things like paying bills, managing a budget, and checking bank accounts. It's often used to prepare tax returns, like with programs such as TurboTax. It's usually not very expensive.
For Small Businesses
This software is for smaller businesses and is usually affordable. It can handle most basic accounting tasks. Many of these products are designed for a single country's rules.
Some simpler programs use "single-entry" bookkeeping, which is like a basic checklist of money in and out. Most businesses use "double-entry" systems, which record every transaction in at least two places, making it more accurate and harder to make mistakes. Some low-end systems might not have strong security or ways to track who changed what.
For Medium-Sized Businesses
This type of software is for medium-sized companies. It can often handle accounting rules from different countries and manage money in many different currencies.
Besides regular accounting, it might also include tools for managing projects or getting important business information. These programs often use strong databases and reporting tools, and they can sometimes be changed or added to by the business.
For Large Businesses
For very large companies, accounting software used to run on huge computers called mainframes. These companies would either create their own software or buy a big package and change it to fit their needs.
Today, the most complex and expensive accounting software is often part of a huge set of programs called enterprise resource planning (ERP) software. Setting up these systems can take a long time, sometimes more than six months! They are designed to be highly customized to fit exactly how a big company works, which is great but also costs a lot of money and time.
You can also find some free, powerful open-source accounting software online now, many of which work through the internet.
Mixed Solutions
As technology gets better, software companies can offer more advanced programs at lower prices. This means that even smaller businesses can get features that used to be only for big companies, like advanced customization or databases that can handle a lot of information. If a small business has many locations or employees working from home, they might need software that can be accessed from different places over the internet.
Software as a Service (SaaS)
With faster internet, many accounting software companies now offer their programs as a "service." This means you pay a monthly fee instead of a big one-time payment. This is called SaaS. More and more businesses are choosing this model, and even older software companies are now offering online versions.
Cloud Accounting Software
Cloud Accounting Software means your financial information is stored on powerful computers (the "cloud") and you can access it from any device connected to the internet, anywhere, anytime. This is different from old software that was only on one computer. People like cloud accounting because they don't have to worry about maintaining the software or upgrading their computer hardware. It can also save money and lets many people access the information from different places. One thing some people worry about with cloud accounting is the security of their data.
Keeping Your Data Safe Online
When your financial information is stored online by another company (in the cloud), there's always a small risk that someone might see it without permission. It's important to trust the company that holds your data. Security threats can be different depending on how and where your data is stored. It's also important to know that different countries have different laws about data privacy. Even though cloud computing has some unique privacy concerns, the ways to keep data safe are generally similar to how you protect data on your own computer.
See Also
In Spanish: Software contable para niños
- Accounting
- Index of accounting articles
- Comparison of accounting software
- Double-entry bookkeeping system
- E-accounting
- Enterprise resource planning
- Tax compliance software
