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How Accounting Software Works in 2023: A Practical Guideline

how accounting software works
Imagine the accounting professional you just hired – working tirelessly day and night but still can not reconcile the figures. Becoming exhausted with day to day transactions as it involves actively in paperwork. Tomorrow you are going to visualize the querterly financial picture in front of the investors. There are missing figures and all the transactions are not recorded that culminates negatively in the balance sheet. What will you do now? Do you have enough time?
Accounting software can help incridibly in recording cash management, sales management, revenue or expense management and stock or inventory management. You can have a quick look in the dashboard where entries are precisely recorded even if you are stuck in gridlock. Will you wonder?
After reading the article you can grasp the idea about how accounting software works, how it protects data and hands-on practical examples in each section to understand the process more concisely and precisely.

Accounting Software? What is it actually?

working process of accounting software

 

Accounting software is a tool with which you track and manage inflows and outflows of every transaction. This software also helps to manage cash, sales, expenses, inventory, banking, and gain insights from comprehensive charts and profit and loss statements.

Suppose this example, today your total sales is $1000. Remember this is an inflow transaction which means an amount has been deposited in the company’s bank account. In the expense segment there is an outflow of $600. End of the day, your ending balance is $400. Next day when you open up the software you will start with the beginning balance of $400.

The dashboard you are seeing now is the combination of cash management, sales management and expense management processes that enables via deploying accounting software. It is the heart of the company where the management can make decisions seeing the financial picture of the company.

The Key Features of Accounting Software

 

Understanding what accounting software is and why you should use it can help you choose the right system. It’s also vital to know what tools and features to search for. Virtually all online accounting software has accounts payable, receivable, banking, and reporting tools, and uses double-entry accounting to ensure accuracy. Some also include payroll tools, inventory management, project management, time tracking, and other services, but these are typically only included in more expensive plans or add-ons. These are a few fundamental components of accounting software.

In Financfy, the business owner will get access to real time visibility of recorded transactions, supplier and customer invoicing, grouping of various accounts, reporting, data accuracy and comprehensive accounting chart to make better decisions onwards.

Real Time Dashboard Visibility

real time accounting dashboard

 

Picture a fictional character – You are the sailor navigating towards an unknown destination and the ocean is becoming heinous. You are at the top of the battilion. While moving towards destination you have a panoramic view of the entire ocean, complete with live updates on tides, winds, and enigmatic waves. You are not blind because you have installed software with real time navigation updates. What will happen?


You can instantly be notified when there is something unusual in the deep ocean. With the rain comes you get to know what’s going on in the seashores and what you need to do now. You can make decisions.

Similarly, the same fact happens in the business world when you are the decision maker. Your current cash flow is always visible at a glance. There is no need to worry about bank reconciliations or to wait for monthly statements. Your compass is now your dashboard.

Dashboard basically presents graphically the entire financial condition in one place. Each day you can see the financial picture with the help of accounting software.

Cash Inflow and Outflow With Online Invoicing

employee testing online invoicing software

 

With a few clicks, you create professional invoices. Say goodbye to manual data entry, waiting time and tons of invoices.The accounting software takes care of all the formatting and design for you, so you don’t have to. The time it takes for your clients to receive and process your payment request is cut down by sending these digital invoices.

Cash outflow, which is the opposite. There are several costs associated from operational costs to vendor payments. These outflows are processed into detailed records by accounting software with online invoicing.The most recurring payments such as manufacturing cost, supplier payment, rent, utilities are maintained by invoicing.

Figure out overspending and underspending categories

Start with an example, suppose, you are a financial analyst of a renowned farm. Your plan was to decrease operational cost from any categories with overwhelming expansion of the company. You identified some of the categories where you can minimize day to day expenses. While looking at the dashboard, you found something fishy and unwanted. Instead of underspending you generated overspending. With the detailed and analytics you got to know that you are spending more in paying overtime hours.
Accounting software precisely categorizes transactions in addition to just recording them. This enables you to analyze your spending in more detail, discovering areas where spending is more than planned and others where there is an unexpected surplus.

Historical Data Analysis

 

Over the years due to recession the inflation is continuously spiking upwards. The operational expenses also increased to a newer degree.

Accounting software exhibits the overall financial condition as all the transactions and detail entries are compiled since the deployment of the software. All the transactions are in one place. One of the essential features of accounting software is compilation of historical and recent data. It is easily measurable if any of the expenses gets higher as it contains historical data.
For example, in 2014 the transportation expenses were $20,000 yearly. In 2023 it has been doubled to $40,000. The reason is the scarcity in natural resources. The software dashboard exhibits the data graphically.

You can request for a demo accounting software in Financfy, if you need these features at one place.

Unifying Accounting and Finance with Integrated Software

In the past, accounting and finance teams might have operated with different datasets, leading to confusion and inconsistencies. Integrated software updates in real time, ensuring that both divisions work with the same, up-to-date financial insights.
Besides the key features of accounting software, there are some more common features you can look at.
  • High speed
  • Accuracy
  • Efficiency
  • Secured data
  • Lower cost
  • High reliability
These are the main key features of accounting software that exist almost in every software.

How Accounting Software Works - Explained

 

In this section we will learn the entire mechanism of accounting software practically.

Operating accounting software users can manage cash, sales, expenses, inventory, banking, and gain insights from comprehensive charts and profit/loss statements at any time, anywhere.
Let us imagine a context where we can visualize every relevant process of this software.

Suppose, Mr. Albert is the owner of an online retail shop. As big as they are, the day to day manual process of paperworks shrinking the company’s efficiency and productivity.
The entire operation is being disrupted.
One of his friends advised him to deploy accounting software to streamline the operation with cash management, expense management, sales management and inventory management. Albert directly hover over the google search engine and get to know about accounting software from Financfy. The team deployed the software instead of the manual process and trained Albert how to use this software.

Albert opened an account and assigned two finance and accounts teams to manage business together in one accounting software. Now the team is going to enter the month end transaction one by one. After giving input all the data this is how it appears.
January transaction –

Sales management

Total sales: $50,000
Breakdown of sales-
Electronics+clothing+acessories: ( $30,000+10,000+10,000 ) = $50,000
Average order value $30,000
Due- $5,000
Expense management
Total expense $35,000
Breakdown of expenses-
Cost of goods sold+marketing+payroll= ( 20,000+$5000+$10,000 ) = $35,000
Inventory management –
There is $5,000 remaining in the ineventory which will be listed in the expense sheet,
In the company dashboard Mr Albert’s profit is ( $50,000 – $40,000 ) = $10,000
To summarize –
Total sales – $50,000
Total expenses – $40,000
Total profit – $10,000
With help of this accounting software Mr Albert is having an endorphin surge while going back to home

Conclusion

Simply put, accounting software does more than numbers. It acts as a craftsman that weaves together cash, sales, inventory and expenses into a narrative. Think of it as a an essential tool to streamline operations and overall business activities. As we conclude, keep in mind that accounting software is not merely a tool it embodies the essence of the financial picture of the company.
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Financfy Team

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