Having a great accounting system is a critical component of any successful business. Currently, there are many types of accounting systems to choose from, including manual and computerized accounting systems. Understanding how these systems work is important if you want to choose the right fit for your business.
What are accounting systems?
Accounting systems are the method
s used by accountants to manage a business's financial activities such as income, expenses, and other transactions. The goal of an accounting system is to help create financial reports to help businesses have accurate data of their financial information
and understand how this affects their organization as a whole. Creating a streamlined accounting system helps improve record-keeping, organize financial data, and make better financial decisions.
Types of Accounting Systems
DOUBLE-ENTRY ACCOUNTING SYSTEM
This type of accounting system is traditionally the most commonly used. In a double-entry accounting system, every entry has a corresponding entry in another account hence the name. Many businesses choose this type of accounting system as it has better data accuracy. Some other benefits of using a double-entry accounting system include:
Simplifies the creation of financial statement
Makes spotting and fixing data errors easier
Makes it easier to detect and reduces the risk of fraud
Makes easier to forecast profit and loss
SINGLE-ENTRY ACCOUNTING SYSTEM
Another type of accounting system is the single-entry accounting system. As the name implies, it differs from the double-entry accounting system as it only involves one entry per transaction. Though businesses more often choose double-entry over single-entry accounting system, there are still many benefits of using this type of accounting system including:
Simplifies accounting processes
Less spreadsheets to upkeep
Faster forecasting of profit and loss
Allows small businesses to do their own bookkeeping
MANUAL ACCOUNTING SYSTEM
Manual accounting systems involve maintaining accounts by hand and using physical books and registers. Small businesses often use this accounting system because it has lower costs. Some other key benefits of using this system include:
Simple and easy record-keeping
Reduces the risk of data loss
Saves money on accounting system setup
Reduces the risk of data corruption
COMPUTERIZED ACCOUNTING SYSTEM
A computerized accounting system is a software program that a business may use to record and process financial information. Computerized accounting systems offer many features and allow customization to better fit a business’ needs. This type of accounting system offers many benefits including:
Faster data entry and report generation
Can automate business and accounting processes
Increases data accuracy and lowers the risk of data errors
Generates real-time data
How to choose an accounting system for your business?
Each accounting systems have key differences and benefits and it’s important to consider these when choosing an accounting system for your business. Below are some guide questions that may help you decide which accounting system fits your business’ needs.
What does your business need?
Consider the specific needs of your business. Knowing it can help you choose which accounting system will better fit your business. You may want to think about:
How you can integrate your accounting software with other business software you’re using.
Keeping your accounting system within budget.
Any add-on features that may be specifically beneficial to your organization.
Using a system that suits the skills of your team.
How many accounting processes it can automate.
Any system customization available so you can tailor your accounting system according to your business profile and needs.
What features do you want in an accounting system?
Taking note of what specific features you may want in your accounting system may help narrow down your search. While most accounting systems have similar features, you may want to evaluate them according to how easy it is to use, how much control you have over customization and automation, and so on. Some features you may want to consider are:
Bank connection
Contact management
Sales
Budgeting
Invoicing
Payroll
How are your resources?
Another key step is to think about business resources like budget and the accounting skills of your employees. Considering this can help you decide what type of accounting system works with what your business already has.
What does your accountant think about it?
Consider consulting with your business’ accountant since they can use their experience, expertise, and knowledge of your business’ finances to help you choose which accounting system will best work for your organization.
Overall, learning how to choose an accounting system is one of the most important steps towards the success of your business. Let the complexity and size of your business help you determine which system you need but also, don’t forget to consider if it is cost-effective and matches the skills of your accounting team. Setup a framework, take the time to plan your accounting needs, and commit to learning the system.
