This lesson will provide an overview of:
- Cloud-based accounting, tax and business services
- Advantages of cloud-based vs manual accounting
- Understand the basics of a bookkeeping system
- Explain the advantages of using an online accounting system
- Identify an appropriate cloud-based accounting system for your tourism business
Credit: Beanninjas
What is an accounting system?
An accounting system is the system used to manage the income, expenses, and other financial activities of a business.An accounting system allows a business to keep track of all types of financial transactions, including purchases (expenses), sales (invoices and income), liabilities (funding, accounts payable), etc. and is capable of generating comprehensive statistical reports that aid in the decision-making process.
Today, accounting is generally automated and computer-based, using specialised software and/or cloud-based services. However, historically, accounting systems were a complex series of manual calculations and balances.
What an accounting system manages
- Expenses: The amount of cash that flows out of the company in exchange for goods or services from another person or company are the expenses. In older accounting software or with a manual system such as Excel, it is necessary to manually enter, balance, and categorise each expense. An automatic accounting system allows quick entry, categorisation and automatic balance of expenses.
- Invoices: Creating a professional looking invoice is an important part of developing a positive brand image and building confidence with customers. Accounting software allows instant invoice creation with the ability to customise and automatically keep track of paid invoices and income.
- Funding: All the business liabilities, whether accounts payable, bank loans taken to support the business, or mortgages, etc. An accounting system keeps track of these liabilities as payable values and automatically updates the balances as soon a payment is made and accounts are settled.
The difference between traditional & computerised accounting
Traditional accounting is processed manually with all transactions recorded in columnar papers and kept in binders. Now that computers are popular and software affordable, accounting tasks have moved from paper to online programs.
The most glaring difference between traditional and computerized accounting is the speed of operations. With an accounting program, data is entered once and it is saved. The program provides management with reports in a speed never dreamed possible in the traditional days. No more waiting days or weeks to know whether your business is making a profit. Using computerized accounting, information can be accessed in a matter of minutes. Once data is available in the system, it can be used in reports, queries and analysis.
Computerized systems drastically increase the accuracy of calculations compared to the traditional, manual system, in which columns have to be added up, numbers moved from one page to the next, and trial balance and financial statements manually compiled. If errors occur, many hours can be spent trying to find and correct them. With accounting software, this problem is eliminated..
The traditional manual accounting system with paper and pencil may be cheaper than the computerized version if your business doesn't have a computer. The manual system may work for small businesses up to a certain point, but with the affordable costs of computers and software, most businesses use a computerized system.
When using a manual system, the risk of losing data is real. If important papers are damaged or destroyed, that work may have to be re-created. Copies of the original work can be made, but that could be expensive and time-consuming. Accounting on a cloud-based computerized systems means that data is automatically saved and backed up.
Xero's dashboard display
Credit: Beanninjas
Advantages of cloud-based accounting
- Ease of use - Online accounting has become very user-friendly, giving small-business owners the ability to manage business financials with minimal accounting knowledge.
- Storage and speed - By using the remote storage and processing capabilities of the cloud software, local information resources are freed up on company computers to save valuable hard drive space and preserve computer processing speed.
- Security - Cloud accounting service providers are in the business of protecting client data. These service providers have multiple layers of security measures in place to protect both the integrity of the data and the data itself. Companies using a localized accounting program risk losing data, identity theft, intellectual property theft, and computer viruses, among other security issues.
- Flexibility - Users can access, record, maintain, and analyze accounting records from a variety of devices, which offers significantly greater flexibility that most standard local software programs.
- Reliability - If a localized server fails, it's possible that access to a company's financial records may be temporarily restricted. A cloud system helps ensure that users can access financial records whenever and wherever they have internet access.
- Taxes - A cloud-based system can have important tax data and financial reports available with a few clicks of a mouse.
Popular accounting software
Some of the most popular accounting software programs are: These programs vary according to their features, pricing and ease of use.When you're ready to choose an accounting program, refer to the following article, which compares these tools: The best small business accounting tools
Sources:
https://www.paychex.com/articles/finance/what-is-cloud-accounting
https://smallbusiness.chron.com/difference-between-traditional-accounting-computerized-accounting-4021.html
Summary
- An accounting system is used to manage the income, expenses, and other financial activities of a business.
- Online accounting systems are faster, more accurate, secure and reliable than traditional (ledger book) methods.