Using accounting software

1.1 You can create invoices and bills on screen.


• You can search for a specific customer or supplier in order to insert their contact details, rather than entering them manually.
• Your accounting software should also store information about products or services, so you can insert names, prices and other details automatically.

• Calculations for items such as VAT, discounts and commisions should be automatic. Most packages will let you set criteria for these depending on circumstances. For instance, you can apply discounts only to certain customers.

• The software should check dates, customer numbers, VAT codes and other entries for accuracy.

• Most accounting software allows you to send documents like invoices, statements and remittance notes via email. You should also be able to save or print them.
• Some packages offer electronic invoicing, where the invoice is transmitted to your customer’s purchasing system for payment.

1.2 Routine book-keeping is handled by the software.


• As you enter details of sales, purchases and other transactions, the software will update your accounts automatically.

  For instance, if you purchase stock, the cost will be recorded correctly and your stock level will be updated

• As a result, you should be able to view the latest information on customer status and stocks whenever you need it (see 3).


1.3 The software should also provide you with immediate updates on your cash position.


• The impact of payments and receipts on the cash position will be calculated and recorded automatically.

• The software should provide details of your bank balance, together with information on payments that have not yet cleared.


  Check the software can handle and collate different bank accounts, as well as any credit or debit cards.


• Many packages can connect to your online banking. This allows them to download details of your latest transactions and reconcile them with your accounts, giving you a truly up-to-date cash position.


1.4 Most accounting packages offer an additional payroll module.


• Payroll software makes it easier to calculate and print payslips and send payroll data to HM Revenue & Customs (HMRC).
• You may have to pay extra for payroll functions. All businesses must now report payroll data to HMRC each time they pay their employees at the time they pay them.


2.1 Appropriate accounting software should simplify and speed up the preparation of VAT returns.

• As long as you enter all your transaction details, the software should show all the information you need for your VAT return.
• Accounting software should also be able to display your VAT liability at any time, and keep track of when your next tax bill is due.

2.2 The software will make it easier to deal with HMRC.


• You should be able to produce a statement showing profits (or losses) for the year 
to date.

• You should also be able to produce a profit forecast for any period to estimate how much tax you owe (see 4).
• Use your cashflow forecast to show when the tax bill will arrive, and whether you will have the cash to pay it.


2.3 Some accounting packages can automate tax and VAT returns.

• The software might be able to send your return to HMRC automatically.

2.4 Using accounting software should allow your accountants to prepare your year-end accounts quickly and easily.


• Many companies are obliged to have their accounts audited, so it makes sense to take your accountant’s advice on the selection of accounting software.


  Your software must be able to maintain a satisfactory audit trail.


• All accounting software should be able to produce a profit and loss account, summarising the performance for the year.


  Check the software can also provide information for any explanatory notes you want to provide with your returns.


• Accounting software should be able to produce a balance sheet summarising assets and liabilities.


3.1 You should be able to tighten up your credit control.


• You will be able to run reports on your total credit position.

• You can spot potential problems by analysing the information by various criteria, such as geography or salesperson.

• The software should also be able to produce reports showing the payment history and outstanding balance for each customer to help you determine how much credit to offer them.


Accounting software can be particularly effective when integrated with a customer relationship management (CRM) system to give your sales team access to every customer’s history.


3.2 Accounting software makes it easy to establish a cost control system.


• Establish a ‘standard cost’ and measure ‘actual costs’ against it.


3.3 The software can be used to provide you with detailed sales information.


• You should be able to analyse sales by different categories, such as customer, outlet or salesperson.

• You can identify seasonal variations.


3.4 Accounting software can help you monitor your stock position.

• Movements in stock levels should be picked up automatically.

• You may need additional hardware to gather information on fast-moving stock.


  For example, you may want to connect POS (‘point of sale’) terminals to your accounting software.


• With accurate, detailed stock level information, you can streamline your inventory, minimising the amount of cash tied up in your warehouse.

4.1 You will be able to prepare budgets showing the sales and profits you expect to achieve, and the costs involved.

• The software should be able to handle recurring costs like rent and wages.

• You can use past experience to forecast sales levels and to identify the cost of fulfilling your orders.


4.2 You will also be able to prepare cashflow forecasts, showing what cash you expect to come in, and when (if at all) you expect to run into problems.


• Such forecasts will enable you to take steps to avoid problems.

4.3 Accounting software makes it easier to make ‘what if’ calculations.


• For example, you will be able to identify the effect if your sales assumptions turn out to be over-optimistic.


4.4 It’s much easier to understand forcasts, projections and reports if you can represent the information graphically. 


• Make sure the software either produces graphs or allows you to export the information into a spreadsheet.


4.5 As you use your accounting software, the library of data it contains will become a valuable resource. Make sure you can draw on it to improve projections.

5.1 You can establish a monitoring system to show how well each individual area is performing against budget, or against other comparable periods.


• You will be able to identify problem areas and probably pinpoint the cause of poor performance.


  For example, if your sales are behind forecast, you may be able to trace this back to an marketing underspend.


• You should be able to identify problems earlier and take action to fix things sooner.

5.2 You can use the software to determine the real performance of each department.


• The software should allow you to break down your costs for different departments, products and individuals. You can match costs with income to determine how much each activity earns you.
• More advanced software allows you to combine information from different departments to determine the real costs of a project.

• The software should allow you to measure the worth of a product or division, in terms of its ability to generate cash.

  For example, it may be worth maintaining a low-profit product if it generates cash to develop other products.

5.3 You can easily get an overview of key performance indicators for your business through a ‘dashboard’.

• This is displayed graphically and easy to understand. Think of it as a snapshot of the state of your business. It can be made available throughout your company, so all employees know how the business is performing.

5.4 The software should help you produce management accounts, showing how you are doing overall.


• Monthly management accounts will give you a good idea of how well your company is performing against targets. Some companies may want to produce them more often.

• The accounts should cover the latest accounting period, and also show the picture for the year to date.

• You can check the performance of each part of the company, and produce a ‘profit and loss’ account, summarising overall performance.


  Check that it can handle non-cash items, such as depreciation, and pre-payments and accruals.


• You may use it to produce a cashflow breakdown by division.

• It should also permit you to produce a ‘trial balance’, totalling all debit and credit balances and checking for mismatches.

5.5 The software will permit you to update budgets and forecasts easily.


• You will be able to feed in the performance to date to amend your forecast for the year.

6.1 You might need help to get a system up and running.

• Having a system compatible with your accountant’s can make it easier to prepare figures.

  You may want to adopt the one your accountant uses, for ease in preparing year-end figures. But only do this if you are confident it can meet your own requirements, too.


• Your accountant can provide you with a ‘trial balance’ to get started.


  The best time to implement a system is usually at the beginning of a new accounting period. However, you can switch at any time, as long as you enter in the right starting figures.


• You need to decide who has access to the system, and how you will maintain security.


6.2 Learning a new system takes time. Make sure you can get adequate support and training for you and your employees.


• How much training will you need?

• Different personnel will need different levels of training.