(a) Accounting Software Requirements

Businesses must always be planning. A checklist of immediate accounting software

requirements is a great start, but it’s also wise to consider future needs as the
business grows and whether the software can take on additional functionality.
Importantly, the more tasks and processes the software can automate, the more
efficiently the accounting department — and, in turn, all areas of the business — will
run.
Following are 19 important accounting software requirements to look for during the
evaluation process.
 General ledger: The general ledger (GL) is the heart of any accounting
solution because it contains records of every financial transaction made by
the business. Software automates the associated intensive record-keeping,
including creating detailed journal entries; crediting and debiting the
transactions in the proper account categories and subledgers, in compliance
with the double-entry accounting method; reconciling discrepancies; updating
the GL in real time; and ensuring the accounts are in balance.
 Order management. From the time an order is placed to when it reaches the
customer, order management is hard at work. Some related accounting
software attributes include receiving, tracking and fulfilling orders;
automatically updating inventory levels; billing customers and managing their
data; handling post-sales and returns; and analyzing performance trends.
 Accounts receivable and advanced billing: AR is the money customers
owe a company for purchased goods and services. Accounting software
can automate the AR process, too, including creating, sending and tracking
invoices, and processing inbound payments. Leading accounting software
allows for a variety of digital payment options, such as ACH payments and
peer-to-peer payment apps. It can also handle more advanced billing options,
such as deposits and partial payments, and properly account for them in the
GL and subledgers.
 Revenue recognition: Accounting software should ensure that a business
recognizes revenue when it is earned, as required by the accounting method
it follows (cash- or accrual-basis), its business model (such as a subscription
service) and geographic location. This requires accounting software with
configurable revenue recognition rules based on specific milestones and the
ability to integrate with billing, project management and sales systems.
 Purchase order processing: The purchase order (PO) process is part of the
larger procurement process that focuses on the creation, management and
fulfillment of POs. Common accounting software features include
customizable PO forms; automated tracking, approval workflows and
transaction recording; and integration with procurement and inventory
management systems.
 Accounts payable: Accounts payable (AP) is the money a business owes its
vendors and suppliers for purchased goods and services. Of course, all
businesses want to remain in good standing with their partners so as to
negotiate better prices and discounts. Accounting software can automate the
AP workflow, including capturing and extracting details from invoices, coding
them for the GL, routing them for approval (if needed), issuing payments and
reconciling invoices against banking statements.
 Inventory management and costing: Inventory management is the practice
of maintaining the right amount of stock to meet demand. Because inventory
is an asset, the value of how much the business has on hand and
associated carrying costs must be continually updated in accounting records.
That requires integration between accounting and inventory management
systems. The accounting program should support the main inventory costing
methods — first-in, first-out (FIFO), last-in, first-out (LIFO) and weighted
average cost. These methods are used to calculate the cost of goods sold
(COGS), which is reported on a company’s income statement and is part of
several important financial calculations.
 Fixed asset management: A fixed asset is a long-term asset — such as
property, plant and equipment (PP&E) and intangible assets, such as patents
and copyrights — used by a business for at least 12 months. Accounting
software manages the fixed asset’s life cycle. That includes recording the
detailed breakdown of an asset’s cost, calculating and properly recording
depreciation, adjusting the asset’s value in the event it becomes worth more
or less and tracking its sale or disposal.
 Amortization schedules: Amortization schedules help businesses manage
their fixed assets by calculating and scheduling depreciation over time.
Software can accurately calculate the depreciation expense for each fixed
asset and generate reports that comply with accounting standards. The
software also tracks the remaining value of each asset and provides
information on when it needs to be replaced or upgraded.
 Tax management: Accounting software should automate calculation of the
variety of taxes associated with every business transaction. As such, the
software must be able to integrate with every other system that handles
transactions, such as procurement, ecommerce and order management
systems. Simultaneous compliance with tax laws across multiple jurisdictions
is another important capability that helps ensure the business pays the right
amount of taxes. Naturally, the software should also provide an audit trail to
prove it.
 Payroll management: For most companies, payroll is their largest expense.
It’s also a complex process that includes calculating gross and net pay,
withholding taxes and deductions, issuing payments, paying payroll taxes to
the IRS, updating GL accounts after employees are paid and distributing year-
end tax forms. Accounting software that includes payroll capabilities or
 integrates with separate payroll software automates these steps, in
compliance with current tax laws and other labor regulations.
 Employee expense management: Often associated with travel, employee
expense management covers all of the processes and policies for reimbursing
employees for the business expenses they pay out of their own pockets.
Accounting software should automate the workflow, enabling employees to
create and submit their expense reports and then automatically route them for
approval, schedule them for reimbursement and, ultimately, execute the
payment. The software should also include controls that ensure expenses are
legitimate and documented for tax purposes.
 Banking management: Banking management refers to the oversight of
banking activities. This can include any or all of the following
features: account reconciliation (including bulk reconciliation), transaction
tracking, check printing, payment processing, reporting, multicurrency support
and bank feeds. Overall, banking management features in accounting
software help businesses manage their cash flow more efficiently and
accurately, while reducing the risk of errors and fraud.
 Close process management: Closing out the books at the end of an
accounting period is a multistep process that culminates in the generation of
financial statements and reports. Accounting software should be able to
automate much of the process in real time, so that a business is continuously
closing. Features should include automated journal entries and adjustments,
reconciliation capabilities, financial statement preparation (including income
statements reset to zero for the new period and locked-in balance sheets) and
even the use of AI and machine learning to help optimize the process over
time.
 Financial controls: Financial controls within accounting software include a
range of tools and processes designed to catch and prevent errors, fraud and
other financial irregularities. Some common examples of financial controls
include hierarchies that establish a system of approval levels for financial
transactions, and separation of duties, which prevent fraud and errors by
ensuring that more than one employee is involved in a financial process. In
addition, the creation of audit trails provide a record of all financial
transactions and any changes made, while access controls limit the ability of
individuals to access and modify financial data.
 Financial statements: These are important analytical tools for internal
business executives as well as interested outside parties, such as investors
and lenders, all of whom use financial statements to inform strategic
decisions. Accounting software should be capable of automatically producing
balance sheets, income (aka, profit and loss) statements and cash flow
statements. It should automatically document changes in equity, too, and do
all of this in accordance with accounting rules that are built in and/or
customized, if necessary, to the needs of the business.
 Reporting, forecasting, business intelligence and analytics: Accounting
software contains a wealth of insight that drives important decisions for the
entire organization and individual departments. Leading solutions can drill
down deeply on real-time financial data to demonstrate whether the company
is meeting its goals, identify trends, create financial forecasts, predict cash
flow and generate reports, to name some critical capabilities. Dashboards
visually displaying key metrics and patterns and breaking down
multidimensional data also lead to actionable reporting.
 Budget management: Budget management in accounting software refers to
the ability to create, manage and monitor budgets automatically. This means
businesses can track their financial performance against budgeted goals and
adjust spending as needed. Specific budget management features include
real-time tracking, customizable alerts, forecasting, expense management
and reimbursement automation integration, and automated reporting.
 Project accounting: Also known as project cost accounting, project
accounting follows specialized processes and standards for managing the
many detailed expenses associated with individual projects. Advanced
accounting solutions can track project costs, such as time and materials and
employee hours; recognize revenue for an ongoing project in accordance with
any of several methods that can be used to assess project completion; handle
budgeting and different types of billing methods, such as time and materials or
progress-based; and monitor project performance in real time, among other
features.