What is accounting software?
Accounting software manages and records the day-to-day financial transactions of an organization, including fixed asset management, expense management, revenue management, accounts receivable, accounts payable, subledger accounting, and reporting and analytics. A complete accounting system keeps track of an organization’s assets, liabilities, revenues, and expenses. These transactions then populate the general ledger in real time, providing CFOs, treasurers, and controllers immediate access to real time, accurate financial data. It also allows P&L owners visibility into their performance at the operational level.
The systematic recording of these financial transactions enables the production of quarterly and annual financial statements, including balance sheets, income statements, statements of cash flows, and statements of stockholders’ equity. Accounting software is a key component of an enterprise resource planning (ERP) system.
ERP systems unify essential business functions, such as accounting, financial planning and analysis (FP&A), supply chain, inventory management, and procurement. These applications are natively integrated with a common user interface and data model, eliminating the need to move between systems or integrate siloed data to manage different aspects of your business.
Benefits of accounting software
Accounting software is crucial in helping organizations run their day-to-day business processes. It allows business leaders to keep their finger on the pulse of their company’s financial health.
General ledger (GL) and subledger
Modern accounting software is designed to allow both journal entries and automated subledger entries to automatically populate the general ledger, allowing CFOs and controllers to have a real-time view of their financial data.
Accounts payable (AR) and accounts receivable (AR)
A complete accounting software solution does more than just basic accounting. It helps organizations to reduce records redundancy, deliver better budgeting and forecasting, and enable a thorough and properly categorized expense management. In addition, it provides seamless integration into banking systems, enables more accurate audits, and keeps detailed tracking records of all assets and liabilities.
Cash management
The cash management capabilities in accounting software provide accurate cash positions by automatically reconciling cash transactions to bank statements. These capabilities also enable companies to make timely investing, borrowing, and other cash decisions with automated cash forecasting based on payables, receivables, payroll subledgers, and external transactions.
Asset management
A modern accounting solution helps you manage the entire financial cycle of assets, including acquisition, capitalization, depreciation, and retirement. Having this complete visibility helps businesses deliver accurate financial statements related to appreciation and depreciation.
Risk management and compliance
The best defense an organization has against fraud and unauthorized user access is accounting software with built-in security, risk management, and audit controls. These internal controls and separation of duties (SoD) help you stay compliant with Sarbanes-Oxley (SOX) regulations and give your enterprise a secure, single source of truth for data.
Collections management
Managing collections involving customers is an important accounting software capability. With comprehensive collections management, it is easier to rank customers, establish collection strategies, manage collection payments, and initiate late-stage collections for bankrupt customers.
Revenue management
Embedded revenue management capabilities in accounting software automate the process of using analytics to maximize revenue and profitability.
Reporting and analytics
A complete accounting system not only records financial transactions, it also includes reporting and analytics capabilities. These prebuilt dashboards help finance leaders make sense of their organization’s financial health and drill down for more detailed information. These dashboards measure critical financial KPIs in real time, including current ratio, quick ratio, debt-to-equity ratio, net working capital, and inventory turnover—just to name a few.
Accounting software—on premises or in the cloud
Since the introduction of accounting software nearly 45 years ago, it has evolved tremendously, from an on-premises deployment model to a cloud-based one. The first generation of accounting software was deployed on-premises, meaning the hardware and servers for the software were located in a company’s datacenter.
Today, there is an increasing demand for cloud-based accounting software. When accounting software is “in the cloud,” it simply means that the application runs on a network of remote servers instead of at a company’s location.
The cloud offers a more affordable alternative for accounting software that lowers both operating expenses (OpEx) and capital expenditures (CapEx) because it eliminates the need for companies to purchase hardware or hire additional IT staff. With no costly infrastructure to support, resources can be invested toward innovation opportunities, while employees can focus on more strategic activities instead of managing IT.
There are four core operational concepts that are driving the move of accounting software from on-premises to the cloud. They include:
| Eliminating upkeep | Legacy software systems require a lot of maintenance from staff and consultants. These systems constantly need bug fixes, patches, upgrades, and maintenance fees. With cloud-based accounting software, the heavy lifting of tracking, diagnosing, installing, and testing fixes shifts from customer to vendor. Instead of having you work continually to fix the system, the system continually works for you. |
| Avoiding expensive maintenance | On-premises software requires a great deal of time, effort, and money just to keep it running. With cloud-based accounting software, upgrades, disaster recovery, hardware refreshes, and backups are all handled as part of the service. |
| Real-time, accurate financial data | Accounting software solutions of the past often were designed to “batch transfer” transactions from subledgers to the general ledger. Cloud-based accounting software automatically posts all transactions to the general ledger, ensuring that the GL always contains real-time data. |
| No more shelfware | The old practice of buying extra licenses for future users and potential projects ends with modern accounting software. With the cloud's SaaS subscription model, companies use the licenses they need and add more users or products as they grow. |
The future of accounting software
Accounting software has evolved to meet the demands of a digital world, and the cloud has been key to this transformation. The cloud has elevated back-office accounting software to a comprehensive, mission-critical, integrated solution designed for innovation. As companies encounter new disruptive forces and competitive pressures, these agile, adaptable cloud accounting systems can enable them to achieve financial strength for the future.
Having a modern, cloud-based accounting software solution helps organizations compete in a digital economy. These comprehensive solutions include the following capabilities:
| Advanced reporting and analytics | Gain a comprehensive view into your organization’s financial performance and better understand profitability, costs, and revenue by conducting historical trend and variance analyses using prebuilt metrics. |
| Next-generation technologies | Modern, cloud-based accounting applications are often embedded with next-generation technology, such as artificial intelligence (AI), blockchain, machine learning (ML), and digital assistants. |
| Automation | Built-in account reconciliation and transaction matching allows organizations to dramatically speed the financial close process. Learn how Oracle achieved the fastest close on the S&P 500—in just nine calendar days. |
| Lower total cost of ownership (TCO) | The cloud eliminates the need for businesses to invest in hardware, maintenance, shelfware, and upgrades. Thanks to the speed and scale afforded by SaaS, organizations that use cloud accounting software experience a total cost of ownership that’s up to 52% less (PDF) than on-premises customers. |
| Extreme scalability | As companies grow, their financial management software must have the ability to rapidly and easily scale—across markets, geographies, and products. The data centers of cloud accounting software providers are engineered in a way that provides unmatched speed, performance, security, and scale. |
| Work from anywhere | Cloud accounting software allows accountants, controllers, treasurers, and CFOs to access the application on any mobile device with an internet connection, from laptops to smartphones, enabling finance departments to work securely from anywhere, anytime, on any device. |
| Quarterly update cycle | Oracle’s software comes with automatic quarterly updates, enabling customers to take advantage of increased automation and more features—every 90 days. |
| A complete financial management suite | We deliver the most comprehensive financial solutions available with applications for core accounting and finance, risk management, direct and indirect procurement, and project portfolio management (PPM). |
| Disaster recovery | The security protocols embedded in cloud accounting software are far more extensive and modern than on-premises systems. Cloud providers regularly back up your data to servers in multiple locations, reducing the risk that a fire or natural disaster could compromise your instance of the system and information. |
| Compliance standards | Today’s organizations need more than a digital version of bookkeeping with spreadsheets. Beyond just recording transactions, cloud-based accounting software helps finance teams maintain their fiduciary stewardship, reduce accounting errors, shorten invoicing cycles, comply with ever-changing tax laws and regulatory requirements, and optimize cash flow. |
| Risk management | As money is tracked and managed across the organization, accounting systems should help protect critical data against theft, fraud, and other criminal mischief. Cloud-based financial management solutions include risk and compliance management, so companies can leverage these capabilities beyond audit trails and error checks to include the separation of duties (SoD) and mapping of roles to responsibilities across the enterprise. |
Cloud accounting is no longer just the future—it’s something businesses need to adopt now to avoid operating at a competitive disadvantage. The benefits of cloud accounting software are similar to other cloud applications, but are even more crucial because financials form the basis for everything a business does. Running a company without accurate and real-time financial information is like driving a car without a speedometer or fuel gauge. That’s why a cloud-based accounting system is such a critical investment for businesses today.