Accounting is a crucial aspect of any business, as it provides critical financial information that can be used to make sound decisions and ensure the company’s financial health. With that said, accuracy and efficiency are key when it comes to accounting. Fortunately, we are past the days when businesses had to rely on paper records and manual calculations.

Companies now rely on accounting software to streamline their accounting processes and ensure accuracy. But with various accounting software solutions on the market, how do you know which is right for your business?

In this article, we will discuss different types of accounting software and their features.

What is accounting software?

Accounting software is a comprehensive solution that automates and streamlines the accounting process. It includes features such as bookkeping, invoicing, managing expenses, tracking inventory, and more. It also provides insights and analytics that can be used to make informed financial decisions.

Software for accounting can either be installed on-premises, meaning it is installed and managed on the company’s own servers, or it can be cloud-based, which means it is hosted remotely and accessed via the internet.

The global accounting software market size is projected to reach USD 20.4 billion in 2026.

– Fortune Business Insights

What are the 5 types of accounting software?

Different accounting software programs offer distinct features and functionalities.

Spreadsheets

While technically not accounting software, spreadsheet programs like Microsoft Excel are commonly used for accounting purposes. They provide a basic foundation for accounting, allowing businesses to track income and expenses, create invoices, and calculate tax.

However, they lack the more sophisticated features offered by true accounting software solutions. For example, they do not have features like double-entry bookkeeping or generating financial statements. They can be a good option for businesses that are just starting out. But as the company grows, you will likely need to look for a more robust solution.

Commercial Accounting Software

This is the most common accounting software and usually offers the broadest range of features. It is designed for businesses of all sizes, from small to large enterprises.

Commercial accounting software solutions are usually subscription-based, with different pricing plans according to the features and number of users. They come with essential accounting functionalities such as generating financial statements, tracking income and expenses, preparing invoices, and managing payroll. In addition, they often offer features like double-entry bookkeeping, tax preparation, and inventory management.

Some commercial accounting software providers are also partnered with banks and other financial institutions, which offer integrations that allow businesses to manage their finances in one place. This can be a convenient option for businesses that want to further streamline their accounting processes.

Enterprise Resource Planning Software

Enterprise resource planning (ERP) software is a comprehensive business solution that covers various aspects of a business, including accounting. These programs are designed and often customized for large businesses with complex financial needs.

Aside from offering the same basic accounting capabilities that commercial solutions provide, enterprise accounting software also features powerful tools for financial analysis and forecasting. However, it is usually more expensive than other types of accounting software.

Custom Accounting Software

Custom accounting software is a solution specifically designed and developed for a particular business according to its unique requirements. This accounting software is usually more expensive than commercial off-the-shelf solutions, but it offers greater flexibility and customization.

With custom accounting software, businesses can get the exact features and functionalities they need to manage their finances effectively.

Cloud Accounting Software

Cloud accounting software is a type of commercial accounting software that is offered through the internet instead of being installed on a company’s own servers. This means that businesses can access their accounting data and applications from any device with an internet connection.

Cloud accounting software usually comes with monthly or annual subscription plans, similar to commercial accounting software.

The latest accounting software statistics reveal that 58% of enterprises were using cloud accounting solutions.

– Flexi

The main benefit of cloud accounting software is that it offers greater flexibility and mobility, as businesses can access their data from anywhere. In addition, it is often easier to set up and use, as there is no need for complex IT infrastructure.

One downside of cloud accounting software is that businesses rely on internet connection. If there are any disruptions to the internet connection, businesses will not be able to access their data or applications.

What should I look for in an accounting software?

When choosing accounting software for your business, there are several factors you need to consider:

  • The size of your business: Are you a small business with just a handful of employees or a large corporation with multiple departments and locations? The size of your business will dictate the features and scalability you need in an accounting software.
  • Your budget: Accounting software solutions can range from free, open-source options to expensive enterprise solutions. It’s important to consider your budget when choosing accounting software.
  • Your accounting needs: What type of accounting do you need? There are different types of accounting software for different needs, such as general ledger, accounts receivable/payable, payroll, and inventory management.
  • Integrations: Does the software integrate with other business applications you use? This is important for efficiency and data accuracy. Some solutions are also partnered with banks and government institutions.
  • Updates and customer support: What kind of updates and customer support does the software offer? You will want to choose software that offers timely updates to ensure compliance with changing laws and regulations. Additionally, you will want to make sure the software has excellent customer support in case you run into any issues.

Conclusion

Choosing the right accounting software is integral to the success of any business. The types of accounting software available are classed according to their main functionalities, the size of the business they are intended for, and whether they are cloud-based or installed on-premises.

With the various accounting software solutions on the market, it’s crucial to consider your specific needs before deciding.