With the wide variety of easy-to-use accounting software available, there’s no reason not to use it. Sure, it’s entirely possible to maintain your books without the assistance of software, but it’s also very possible you’ll transpose two numbers, omit a transaction, or tally an invoice incorrectly when you’re working without software. It’s better to take advantage of the many ways accounting software can help you.
Prebuilt forms walk you through transactions such as invoices and check writing. The software handles all the behind-the-scenes entries for you, so you only have to handle each transaction once. This can be especially valuable in the sale of inventory items that can require two entries—one to record the sale and another to reduce the inventory and recognize the cost.
And with software, accounting statements and reports are just a few mouse clicks away. In addition, most programs enable you to drill down into reports. So if a number doesn’t look quite right, you can investigate further, clicking your way into a series of reports to find the transaction screen where you originally entered the amount.
Although it might feel quick and easy to handwrite a check or invoice, this actually adds extra work because you have to then enter the data into your software. And if you don’t do it right away, all that paper can accumulate into piles or easily get lost. Accounting software enables you to handle a transaction once, a key best practice for successfully maintaining accurate books.
What’s more, the standard structure and methods built into accounting software greatly simplify filing the various tax returns.
Bottom Line
Every business of every size should have an accounting software program. There’s simply no better way to keep tabs on your revenue and expenses. Plus, it’s much harder to keep tabs on your bank balance if you don’t have software to refer to.
Desktop versus Cloud-Based Accounting Software
Traditionally, accounting software had to be physically installed on your computer from a floppy disk or CD. When new versions were released, often on an annual basis, you had to purchase the new version and reinstall or update your software. Early on, it was often worthwhile to purchase the updated versions to gain new functionality.
These days, however, desktop accounting software has matured to the point that software vendors have to stretch to come up with new features that warrant purchasing an upgrade. So although a company such as Intuit, which makes QuickBooks, might issue a new software version each year, not all customers purchase the upgrade—and some might let years go by before paying for a newer version.
As a result of fewer purchases and upgrades, software vendors began supplementing their reduced cash flow by offering recurring services, such as payroll processing, credit card processing, and other add-ons. A condition to subscribing to such ancillary services is that you had to upgrade your software at least every 3 years. If you failed to upgrade, you might lose access to certain services, such as payroll processing.
In more recent years, software vendors have found a better model for delivering accounting software—via the cloud. Software that resides solely online is known as cloud-based software.
You access the software via the internet, usually using a web browser. This type of software makes it easy for you to access your books and enter transactions from just about anywhere. The trade-off is that cloud-based accounting packages aren’t nearly as mature as their desktop-based brethren, so working in the cloud often means settling for less functionality.
Definition
Cloud-based software is housed on remote servers so users access the software online.
The rise of cloud-based accounting software has been a boon to software developers, as the subscription model for cloud-based accounting software ensures a reliable and monthly revenue stream. Fulfillment is easier as well because manufacturers don’t have to create physical CDs of their product that must be boxed and shipped.
We think it’s fair to say that over time, desktop-based accounting software will go the way of the traditional hand-written accounting ledger, but we’re still a number of years away from that eventuality. However, what’s good for software vendors isn’t necessarily good for accounting software customers.
When you purchase a desktop-based program, you’re buying a license to use that software on a single computer. If you have multiple users who need to access your books, you must purchase a license for each user. Most desktop accounting programs don’t expire after a period of time if you don’t upgrade, or at least you won’t be directly cut off. Instead, access to certain services is discontinued after 3 years, as mentioned earlier.
Depending on the software you buy, you might only have to purchase the software license, or you might be required to subscribe to a support plan. Pricing for support plans varies widely but commonly costs around 20 percent of the license amount. You might be able to opt out of the support plan and continue using the software, although you then wouldn’t be able to call the software company for help if you had a problem. Regardless, with desktop software, you’re able to establish as many sets of books as you want at no additional cost.
Bottom Line
The least expensive desktop-based accounting software usually starts around $200. Cloud-based programs have monthly subscription fees that often start around $10 to $15 per month.
With cloud-based accounting software, you have ongoing monthly fees for each set of books you need to maintain. You also might have fees for other services such as payroll processing, credit card processing, and so on.
Historically, the screens within your desktop accounting software only changed when you installed a new version. However, QuickBooks, in particular, is starting to add and remove features during the year through regular software updates. Conversely, the screens within cloud-based programs can and do change, often without notice. New features are added, and old features may be dropped. All of this is beyond your control because you’re signing into a central version of the software.