REDEEMER’S UNIVERSITY

College/Department: CMS/FNS
Program: 300 Level Accounting
Course: Accounting Laboratory and Application Software

Code: ACC 207

LECTURE NOTE 2

TOPIC: INTRODUCTION TO ACCOUNTING SOFTWARE

The Study Objective

Accounting software
Features of business accounting software
Accounting software reports
Advantages of a computerized accounting system

Introduction
The intense competition in today's business environment, couple the sophisticated methods of modern business
management, and the stakeholders' expectation has resulted in the demand for more effective and efficient ways
of providing reliable, timely, and accurate information at a reduced cost to management at all levels. This enables
the stakeholders taking proper decisions. Management in response to this demand has placed considerable
reliance on a computer-based information system. Such information must be on real-time and error-free to have
the meaning it deserves and the usefulness it commands. All this involves the use of computer technology.

A computer system consists of two major elements: hardware and software. Computer hardware is the collection
of all the parts that can be physically touched while the software is a set of instructions for a computer to perform
specific operations. Both the hardware and the software are needed for a computer system to work correctly.
Software is often divided into two categories. System software includes the operating system and all the utilities
that enable the computer to function effectively. The application system includes programs housed by the
hardware that does the real but specific work for users, e.g., word processing, spreadsheet, and database
management systems fall under the category of applications software. The application software may be provided
by a software house in which case it is tailored to the organization's need or purchased off shelves called
"Package."

Accounting Software
Accounting software is a type of computer software used by accounting professionals to manage accounts and
perform accounting operations. Accounting is the systematic practice or process of recording financial information
and communicating the same for purposes of internal and external audits, required reports, and financial analysis
to meet legal or internal managerial requirements. Accounting may include systematic and diverse measurement,
classification, verification, summation, and interpretation of financial information. Accounting software can range
from simple, single-entry programs used for individual record-keeping to more sophisticated, double-entry
systems that can process accounts receivable, accounts payable, payroll, and inventory, among other functions.

Features of business accounting software

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The core features of business accounting software programs involve accounts payable, accounts receivable,
payroll and trial balance, and financial statement. Brief descriptions of some of the main components of business
accounting software are:
• Accounts receivable: This is where a company records of all the money it receives, including debtors.
• Accounts payable: This is where a business keeps a record of all its bills, the money it owes to
creditors, and where payments are managed.
• General ledger: This is commonly referred to as “the books,” where all posting s to individual accounts
are made to aid the preparation of financial statements.
• Billing/invoicing: This is where invoices are generated before they are sent out to the company’s
customers or clients.
• Stock/inventory: This accounting tool helps businesses to manage their inventories.
• Purchase order: This is where a business orders its stock or inventory.
• Sales order: This is where a business keeps account of customers’ orders to populate its inventory.
Additional accounting software functions include debt collection, business expenses, inquiries, payroll software,
financial reports, and timesheets and purchase requisitions.

Accounting software reports

Accounting software is good at analyzing business practices and identifies how money flows through the
operation. When an application manages all your financial transactions, it has extensive data at its disposal to
generate various reports. All aspects of the business can be seen at a glance. The reporting options are virtually
unlimited, depending on the type of software used and the data input. You will have all the data you need to run
your business at your fingertips. The following are the top five insightful reports..

1. Trial balance: After posting all transactions, the business can extract and compare debits and credits, and
ultimately, establish whether it is running at a profit or a loss. It is also the basis for the preparation of final
accounting by the system.

2. Income Statement: This shows the income, costs of sales, and expenditure for your business. This report also
indicates the fundamental financial analysis, such as gross profit margin, budgets, and forecasts, to identify and
adjust spending patterns or to find ways to increase sales.

3. Financial Position: This shows the balance sheet of the firm – assets, capital and liabilities.

4. Aged Accounts Receivable: This shows who owes the business money and allows planning for effective
debt collection protocol to enable the organization to meet its liability obligations.

5. Aged Accounts Payable: This shows the creditors of the business (Those we owe money to). It allows
payments of bills on time to advantage of any discounts, plan your cash flow, and ensure all your obligations
are met on a timely basis.

6. Payroll Summary: This shows the payroll at a glance. It allows to compute our tax liabilities, pension and any
other statutory deductions from workers salary or wages.

Advantages of a computerized accounting system

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The main advantages of a computerized accounting system are as follows:

1. Speed – data entry onto the computer with its formatted screens and built-in databases of customers,
supplier details, and stock records can be carried out far more quickly than manual processing.

2. Automatic document production – fast and accurate invoices, credit notes, purchase orders, printing
statements, and payroll documents are all made automatically.

3. Accuracy – there is less room for errors as each transaction entry is filtered before the post.

4. Real- time (Up-to-date information) – the accounting records are automatically updated, and so account
balances (e.g., customer accounts) will always be up-to-date.

5. Timeliness (Availability of information)– the data is instantly available and can be made available to
different users in different locations at the same time.

6. Management information – reports can be produced that will help management monitor and control the
business. For example, the aged debtors' analysis will show which customer accounts are overdue, trial
balance, trading and profit, and loss statements and balance sheet.

7. Reliability- data should always be legible and so will avoid errors caused by poor figures.

8. Efficiency – better use is made of resources and time; cash flow should improve through better debt
collection and inventory control.

9. Staff motivation – the system will require staff to be trained to use new skills, which can make them feel
more motivated. .

10. Cost savings – computerized accounting programs reduce staff time of doing accounts and reduce audit
expenses as records are neat, up-to-date and accurate

11. Reduce frustration – management can be on top of their accounts and thus reduce stress levels
associated with what is not known.

12. Reduce frustration – management can be on top of their accounts and thus reduce stress levels
associated with what is not known.

13. Inventory- If a business manages inventories, the system will show the stock levels at all times. Good
accounting software automatically tracks inventory and prompt the product order. This is has a time-saving
advantage along with the accuracy of results.