Accounting Software: The Four Things Accounting Software Does
What accounting software does
Accounting software does just four things:
Accounting software produces the business forms that a business regularly generates. These business forms include items such as invoices and statements to send to customers, checks to give to vendors and employees, and in special cases other forms such as purchase order forms (to order items from suppliers) or cash register receipts (to give to the people who come into a store).
Accounting software calculates whether or not a business is making money. Accounting software makes and shows the "making money or not" calculation using a profit and loss statement--which simply tallies the firm's revenue and its expenses.
Accounting software also shows the financial condition of the business. The software shows the "financial condition of the business" calculation using a balance sheet--which is simply a listing of a firm's assets, its liabilities, and the difference between the two, its equity.
Finally, accounting software keep good detailed records of important assets like cash, customer accounts receivable and inventory and of important liabilities such as amounts the business owes vendors, employees, the government, and lenders.
No kidding, that's really it. In a nutshell, accounting software just does the four things mentioned above.
How you know if your accounting software is working right
You can typically tell when some business is correctly using accounting software by asking two simple questions:
1. Does the accounting software allow the business to accurately measure their profits or losses?
2. Does the accounting software allow the business to accurately report on their financial condition--and especially on the details of important assets like cash and accounts receivable.
A "no" answer to either accounting software question means the accounting software either hasn't been installed correctly or is not being operated correctly.
More information on accounting software: