A business can do some or most of its accounting in the cloud. The term cloud refers to large-scale offsite computer servers that a business connects with over the Internet.
It would be possible, though not very likely, that a very small business would keep its books the old-fashioned way — record all transactions and do all the other steps of the bookkeeping cycle with pen and paper and by making handwritten entries.
When mainframe computers were introduced in the 1950s and 1960s, one of their very first uses was for accounting chores. However, only large businesses could afford these electronic behemoths. Smaller businesses didn’t use computers for their accounting until some years after personal computers came along in the 1980s.
Many businesses do their accounting work in-house. They use their own computers and buy the accounting software they need. They may use an outside firm to handle certain accounting chores, such as payroll.
Cloud servers have the reputation of being very difficult to break into by hackers. Cloud providers offer a wide variety of accounting and business software and services, and can also be used as backup storage for the company’s accounting records. A business can do almost all its accounting in the cloud. More and more businesses seem to be switching to the cloud for doing their accounting tasks.
There are accounting software packages for every size business, from small (say, $5 million annual sales or less and 20 employees or less) to very large ($500 million annual sales and up and 500 employees or more). Developing and marketing accounting software is a booming business.
Today a business can select from a wide array of accounting software packages: QuickBooks, Peachtree, NaVision, GreatPlains, MAS2000, and others. You could go to Google or Yahoo! and type “accounting software” in the search field, but be prepared for many, many references.
Except for larger entities that employ their own accounting software and information technology experts, most businesses need the advice and help of outside consultants in choosing, implementing, upgrading, and replacing accounting software. Here are a few helpful words of advice about accounting software:
Choose your accounting software very carefully. It’s hard to pull up stakes and switch to another software package. Changing even just one module, such as payroll or inventory, in your accounting software can be quite difficult.
In evaluating accounting software, you and your accountant should consider three main factors: ease of use; whether it has the particular features and functionality you need; and the likelihood that the vendor will continue in business and be around to update and make improvements in the software.
In real estate, the prime concern is “location, location, location.” The watchwords in accounting software are “security, security, security.” You need very tight controls over all aspects of using the accounting software and who is authorized to make changes in any of the modules of the accounting software.
Although accounting software offers the opportunity to exploit your accounting information (mine the data), you have to know exactly what to look for. The software does not do this automatically. You have to ask for the exact type of information you want and insist that it be pulled out of the accounting data.
Even when using advanced, sophisticated accounting software, a business has to design the specialized reports it needs for its various managers and make sure that these reports are generated correctly from the accounting database.
Never forget the “garbage in, garbage out” rule. Data entry errors can be a serious problem in computer-based accounting systems. You can minimize these input errors, but it is next to impossible to eliminate them altogether. Even barcode readers make mistakes, and the barcode tags themselves may have been tampered with. Strong internal controls for the verification of data entry are extremely important.
Make sure your accounting software leaves good audit trails, which you need for management control, for your CPA when auditing your financial statements, and for the IRS when it decides to audit your income tax returns. The lack of good audit trails looks very suspicious to the IRS.
Online accounting systems that permit remote input and access over the Internet or a local area network with multiple users present special security problems. Think twice before putting any part of your accounting system online (and if you do, institute air tight controls).
Smaller businesses, and even many medium-size businesses, don’t have the budget to hire full-time information system and information technology specialists. They use consultants to help them select accounting software packages, install software, and get it up and running.
Like other computer software, accounting programs are frequently revised and updated. A consultant can help keep a business’s accounting software up-to-date, correct flaws and security weaknesses in the program, and take advantage of its latest features.