The best choice often depends on the size of the business and the employment of full-time accountants, accountants, bookkeepers or the owner’s management of accounting records. Each company must select the most appropriate account package that meets both the company’s requirements and the skills of the person or persons who will operate the accounting solution.
Many small businesses do not benefit from sophisticated accounting software when the technical requirements of that software exceed users’ ability to create efficient financial records and leverage the full capabilities of the accounting software to ensure a high level of financial control.
Alternatively, a simple accounting package cannot provide the level of financial control over financial matters such as debtors and credit control, creditors and cash flow liquidity that is required. Financial control and cash flow are of paramount importance and importance when credit is tight.
Every business must maintain a number of books and accounts to meet the legal obligations to calculate taxable net income, which must be both reported to the tax authority and have sufficient financial records to support this calculation.
Until the mid-20th century, it was common practice to create accounts on paper by handwriting, with typing reserved for publication in the final financial statements when required. Handwritten accounting records are largely obsolete for medium and large businesses, but are still used by many small businesses.
With the advent of computers, accounting software has become the norm and there are many simple accounting packages that are easy to understand and provide a sufficient level of financial control for even the smallest business.
Essentially, every small business has a choice between creating a handwritten accounting record with a simple accounting package that could be based on spreadsheets, or a more complex accounting software package that almost always uses a data entry system into a database that can then be queried to create the required financial control.
The choice of handwritten accounts would only apply to the smallest business where the owner had no employees, a limited number of transactions and full financial control without the need for written information. Such handwritten accounts would not be suitable for an entity that requires control of debtors and creditors or that needs to prepare a balance sheet.
For companies that could manage with handwritten accounts, there are better options, such as the use of computer tables. Only minimal knowledge would be required and the advantages over handwriting would be significant.
An accounting package based on computer tables is suitable for most small businesses because it cannot be more difficult to keep handwritten accounts, but in an organized format. The sophistication of the format depends on the ability of the designer of the accounting solution or the accounting knowledge of the person creating the accounting.
Accounting software written on computer tables has the advantage of saving time in data entry, improving accuracy, being corrected in errors, being easily visible and meeting all the basic accounting requirements of a small business. Accounting solutions written on spreadsheets are typically limited in terms of financial control, and mid-sized companies that require additional control over accounts receivable and accounts payable may be better suited for an accounting software database system.
In general, if a company is large enough to employ a full-time accountant or bookkeeper, then that company potentially has the accounting knowledge and skills within the accounting function to utilize a database accounting system and achieve the additional financial controls that become available.
Accounting software that uses a database has the ability to produce regular financial and tax reports, debtor reports and statements, creditor reports and statements, cash flow statements and a series of monthly and final accounting reports such as profit and loss accounts and balance sheets.