Not too long ago – in the closing years of the last century – computerized accounting software seemed to be the solution to the problem of the rising cost of hiring and retaining a staff of full-time accountants and bookkeepers. After all, computerized systems can automatically process all entries to ledgers, track debits and credits, and provide balanced “books” at the end of the year. Therefore, it seemed logical for businesses to take advantage of this new automation and decrease manual accounting expenses by using cheaper – but less accounting-educated – data entry staff.
While manual accounting processes usually entailed the careful monthly balancing of the general ledger to ensure that debit balances equal credit balances, and the preparation of financial statements using the trial balance amounts, computerized accounting systems automate these processes. Accounting ERP software provides trial balance as a built-in report and most packages will not allow posting of an entry to the general ledger until the debit and credit balances are equal – all actions which are intended to ensure the integrity of the accounting structures. But not all accounting systems are created equal and so even with computerized accounting software, you can still run into issues with balancing your books. Therefore, it’s important to understand the limitations (and opportunities) of the different systems on the market.
A History of Computerized Accounting Software
Back in the 1980s, when computer use was still rare – at least in most SMBs – well-trained bookkeepers would keep meticulous books, doing the regular monthly balancing. Even where computer software was being used, there was still the same level of discipline, with errors caught right away or by the end of the month at the latest.
By the 1990s and into the 2000s, a new staffing trend followed the introduction of second-generation automation. Employers spent large amounts of money on new computer accounting systems and then tried to recoup some of that expense by hiring people with reasonable keyboard skills as opposed to expensive bookkeeping abilities. Often, these new employees would lack a full understanding of the necessary controls in accounting. Data would be entered without any regard to its accuracy in relation to ledger balancing. The result? Bad accounting data and an increase in manual work.
Today, many small businesses don’t have dedicated Chief Financial Officers or Controllers on staff, and instead, they rely on contract accounting at year-end. This makes it difficult to catch and rectify errors when they happen and when such data errors are not caught and corrected within a short period (days or weeks), you end up having to deal with detailed backtracking to unearth the mistakes. This wastes expensive hours paid out by your business to the contract specialist hired to sort out where and when the incorrect entries were made. In some extreme cases, this might mean tracking back through 12 – 14 months’ worth of data entry. This can lead to mounting financial accounting expenses, and possible legal or taxation problems. However, even when using accounting software as part of your daily routine, you can still face issues if you aren’t using the RIGHT system as not all accounting systems provide the same checks and balances. Entry-level accounting software such as QuickBooks provides many benefits such as ease of use and minimal training, but because of the software’s simplicity it is easy to make mistakes or delete transactions without creating an audit trail and the system will not automatically check to ensure everything balances.
Accounting ERP Software
The preferred approach is to find an all-in-one accounting ERP software in conjunction with hiring people who understand how accounting processes work. Accounting ERP software not only provides functionality for accounting and financials but also inventory management, contact management, order entry and processing, purchasing, warehouse management and more. Proper accounting ERP software will identify inaccurately integrated data as it occurs, or at the next possible occasion. For transactions posted within the system, a warning (of inaccurate data input) happens automatically; if the situation is caused by external, third-party software, the system will still identify the problem, and give the user a timely warning. This eliminates the need to integrate, multiple standalone solutions, and means that integrity and reliability are already built into the entire system, considering commonly encountered third-party input.
Let’s look at an example.
Pretend you have a manufacturing division at your business, and you use Excel (a third-party software) to record information. Now, if someone enters incorrect data into the spreadsheet, without the right system, the erroneous data will not be caught before entry nor realized afterwards. This may go unnoticed for months. However, with an all-in-one accounting ERP system like Blue Link, the software will catch the incorrect entry by making its check of all entries, including those incoming from third party sources, and alerting you to incorrect data. It will not allow further entries until all accounts are correctly balanced and it will alert the next user and identify the incorrect entry or entries.
Although having accounting ERP software in place is a great start to making sure your books are always balanced, you still want to have people on staff who understand accounting processes, especially as your business grows. This ensures that your team is using the system appropriately and taking advantage of all the opportunities for automation that accounting software provides.