Accounting Software Guide

What is accounting software? 

Accounting software is an electronic version of an accountant’s general ledger that also keeps your books accurate, organized, and searchable. Revenues, expenses, assets, and liabilities are digitally recorded and tracked to maintain a complete picture of your business’s financial health.

This technology can take various forms and offer a myriad of features based on the needs of a particular business or industry. However, most accounting systems share similar features and functionality.

The best business accounting software assists businesses with processes such as bookkeeping, payroll, accounts payable, and accounts receivable. 

We reviewed 25 top accounting software solutions and narrowed it down to the best of the best:

• Zoho Books: Best for small businesses
• FreshBooks: Best for freelancers
• Xero: Best for growing businesses
• Neat: Best for receipt and expense tracking 
• Kashoo: Best for startups

Our picks for the best accounting software

Zoho Books, a product of Zoho Corporation, has been a trusted name in the accounting software industry since its inception in 2011. The software is designed to cater to the needs of small businesses, offering a range of features from invoicing and expense tracking to project time tracking and inventory management. 

Zoho Books has been continuously evolving, with the company rolling out new features regularly. Some of the latest updates as of June 2023 include the ability to drag and drop files while importing invoices, new fields in transfer orders, enhancements to the Timesheets calendar view, and new allocation methods for landed cost. The software also introduced enhancements to webhook creation, allowing users to choose from three types of supported webhook request body formats.

Founded in 2003, FreshBooks was designed to make billing easier for small business owners and freelancers. Over the years, FreshBooks has grown significantly, now serving millions of businesses in over 120 countries. The software offers features like invoicing, expense tracking, time tracking, and more. In 2023, FreshBooks added new features including the ability to adjust time zones for both business and user accounts, catering to teams working in different parts of the world.

Xero, founded in 2006, is a cloud-based accounting software designed for small to medium-sized businesses. Its suite of financial management tools, including invoicing, bill payment, and bank reconciliation, are accessible from any device with an internet connection. 

Xero’s user-friendly interface and feature set have made it a favorite among growing businesses. Recently, the platform has added new features such as bulk reconciliation of transactions, short-term cash flow projections, and business snapshot tools. Additionally, it now offers project tracking and expense claiming capabilities, further enhancing its value to businesses seeking to streamline their financial management processes.

Neat started as a desktop software application for managing expenses and documents and has evolved to focus on cloud-based solutions, exiting the hardware market in 2016. In 2017, it shifted its focus to automated bookkeeping solutions. In 2019, Neat enabled automatic syncing of bank accounts and credit card transactions into its desktop application. 

The most recent addition in 2021 was NeatBooks and NeatInvoices, transforming Neat into a full-service bookkeeping tool. This evolution reflects Neat’s commitment to innovation and meeting the changing needs of its users.

Kashoo, a Vancouver-based company, has been simplifying accounting for small businesses for over a decade. Their cloud-based software, popular in over 180 countries, was born out of a need for a modern, user-friendly accounting solution. Kashoo’s team, who also use the software for their own businesses, have focused on automation and simplicity. They’ve recently introduced features like automatic matching and reconciliation, and customizable invoice design. Kashoo’s commitment to listening to their users and providing a product that meets their needs has made them a favorite among small businesses and accountants alike.

Find your new accounting software

What are the categories of accounting software?

Accounting software comes in many forms. The tools listed below will help you understand which type you’ll need and give you some information on which features to look for.

Core accounting

Core accounting software retains the company’s general ledger and performs accounts receivable and payable, basic tax filing functions, payroll, bookkeeping and bank reconciliation. With these functions, companies can improve their organization and move beyond just tracking accounts on paper or in a spreadsheet.

The combination of these features allows the small business accounting software to provide benefits to the company including consolidated reporting, easier tax filing, and deeper insight and control over the company’s money. Core accounting systems and small business accounting software come in both cloud-connected and on-premise versions, so you can choose the right fit for your company. Cloud-connected core accounting software consolidates real-time data from invoicing, ecommerce, POS, and other online data like bank statements to provide better visibility into your accounts.

Payroll

Payroll software can be combined with general accounting tools or run as a standalone system. Teams looking for the best payroll software should look for a system that integrates with or includes time and attendance software, automates payroll for salaried and hourly wage workers, and complies with tax and regulatory statutes for the company’s locations.

ERP

Enterprise resource planning (ERP) software is a feature-rich tool that combines many categories of accounting software including core accounting, inventory, ecommerce, supply chain management, and even business intelligence solutions. Many companies can centralize all of their data in one complete ERP system, providing better organization and greater functionality.

Due to its extensive functionality, ERP software may not be right for every company, as it often comes with a higher price tag than basic small business accounting software. For growing companies, a few integrated best of breed apps is probably a better option than a complex ERP system.

Billing and invoicing

Deceptively simple in theory, billing and invoicing can be complicated and frustrating if you don’t have the right tools. Billing and invoicing software manages the complex accounting gymnastics that many accounts payable and receivable departments perform. The best billing and invoicing tools come in all levels of complexity, but most provide the ability to automate formerly manual tasks and reduce manual entry errors. These tools come as part of a larger financial management software or can be found in standalone best of breed options. If you’re researching best of breed billing, bookkeeping, and invoicing tools, look for options that integrate with the other accounting, sales, and quote to cash software that your company uses.

Project accounting

Project accounting software streamlines complex, interdepartmental or inter-company projects with sensitive resource and capital allocations. Providing time and expense tools, human and material resource management, and billing and invoicing features alongside project management task management and analysis, project accounting tools bridge the gap between basic task-oriented project management tools and core accounting software.

ALSO READ: 4 QuickBooks Alternatives for SMB Accounting

What are the key features of accounting software?

No matter your industry or business model, the top accounting solutions offer the following standard features or functionality.

Accounts payable/receivable

As the most commonly used feature of any accounting solution, electronic management and tracking of A/P and A/R is included in every system with varying levels of automation. The accounts payable features track payments to vendors, suppliers, and other financial outlays to ensure your payments are prompt. The accounts receivable feature includes billing, invoicing, and collections to help you track missing payments.

Asset management

Electronically tracking and realizing depreciation costs for a company’s material fixed assets is a major function of most accounting systems. While less important to small businesses without expensive capital assets such as production machinery, vehicles, or other forms of property, plant, and equipment (PP&E), manufacturing businesses especially need these tools.

Bank reconciliation

The key to automating many of your accounting functions is to connect your software directly with your financial institution. This allows you to reconcile the accounting transactions you’ve recorded with your bank’s records for your company’s credit, checking, or savings accounts. Most systems include pre-built reports for both month-end and year-end closing to streamline reconciliation.

Cash management

Though many small businesses today are handling less cash — or none at all — managing your company’s cash or cash equivalents is a key function of all accounting software and one that is necessary for preparing the standard Statement of Cash Flows report. Many accounting systems also simplify managing multiple currencies by automatically converting foreign transactions into the currency your business uses.

Departmental accounting

Most best-of-breed accounting software offers support for recording transactions across multiple offices, branches, or divisions. This allows you to treat each subset as its own entity on paper, yet maintain a comprehensive view for tax purposes.

Time and expense management

In addition to tracking your business expenses via Accounts Payable, most accounting solutions offer a separate area for tracking individual employees’ expenses and reimbursements. This includes the ability to easily accomplish expense tracking as well as reconcile expenses with various projects and departmental budgets.

Time and expense management features are critical for reducing manual accounting errors by favoring cloud based accounting software and digital systems over paper timesheets. Time clock software generates digital timestamps based on employee clock in/out data and automatically combines the hours and pays accordingly. This automation reduces the chance of entry errors and the total amount of time payroll accountants spend on data entry.

Reporting

Besides electronically recording transactions, the most-cited reason for purchasing accounting software is the automated reporting feature. There are templates for income statements, profit and loss, sales tax return, and even outstanding balances. Reporting is a great way to ensure you know exactly what’s going on with your accounts and can make corrections as soon as something goes awry. The most advanced accounting software will integrate with business intelligence software or an ERP to give you a view of the company’s financial health within the context of the entire business.

Budgeting and forecasting

Critical to the forward-thinking company, budgeting and forecasting tools give companies insight into their past revenue and spending habits to help them better use their resources and plan for future financial success. The top accounting tools can take advantage of financial records data to build intelligent insights that accurately judge a company’s earning potential. These tools allow C-levels and sales teams to build better revenue goals. Some even include artificial intelligence and machine learning to improve these forecasts.

What are the benefits of accounting software?

These accounting software benefits can have far-reaching effects across the entire company’s financial systems.

Time savings

The most immediate change many companies notice when they move from paper ledgers or spreadsheets to accounting software is a major reduction in the time spent entering and balancing ledgers. When comparing payroll systems, prioritize those that connect to bank, credit card, and investment accounts directly and port over financial data without human intervention. That changes the job of the accountant from record-keeper to funds approver and can allow the accountant more time to help direct financial strategy.

Reduction in manual data entry errors

When using tools like MS Excel, the risk of human error when working with spreadsheet formulas is much greater compared to using accounting software specialized for a client or industry. Accounting software takes the guesswork out of the equation, no matter the size of your client’s business. It automates many of the formulas for taxes, benefits withholding, and more, so you won’t have to worry about making calculation errors in your financial report.

An accounting system will reduce the amount of paperwork required to sufficiently run the financial department of any company. Look for these features or connections to these apps included directly in the software:

• Invoicing
• Time and attendance
• Quote to cash
• Financial institutions
• Regulatory compliance
• Tax compliance and submission
• Inventory management
• Financial reporting

Greater account visibility for all internal stakeholders

Top accounting features and tools provide visibility into the balance sheet and the financial workings of a company for accountants, executives, and management teams. Each team may use the data differently, either within the online accounting software or exported to business intelligence software, so it’s important that they have all the information they need.

Higher professionality

Most people believe what they perceive, and a company with a more professional appearance is perceived to be more successful and trustworthy. You want to put your best foot forward with your clients, and you can do that by using accounting software as it relates to things like invoicing and payroll.

Dos and don’ts of professional invoices

Do:

• Keep your invoices simple
• Include a breakdown of all charges, discounts, and prepayments
• Include your company name, address, and phone number
• Add a simple thank you line (e.g. Thank you for your business!)

Don’t:

• Make invoices overly complicated or long
• Send invoices late
• Be rigid in how you send your invoices if your customers prefer them a certain way (i.e. by email instead of by mail)

Multi-device access

As a business owner, you can’t always be in the office. You have offsite meetings to attend, and you’re likely working at home long after business hours have ended. Because of this, you need to be able to access your accounting records from a variety of devices, including your cell phone. Accounting software can make this easy by offering mobile-friendly formats and applications.

Real-time engagement

Every business owner, small or large, wants to know what their bottom line looks like. They should have the ability to see where they’re at in real time so they have the option to correct course immediately if something goes awry or to capitalize on something working out favorably. Accounting software can offer this visibility. In this case, being a small business is an advantage, and with the right information, they can be more agile than their larger counterparts.

The best accounting software helps you positively engage with your customers about their payments. Some software tools provide a portal where your customers can pay online by credit card or through their bank account, rather than having to mail you a check. Not only does this make your business look more professional, but it also keeps your customers happier, providing a stronger business relationship.

Easier auditing

With the use of accounting software, you’ll have an audit trail, so you can simply and easily see what changes were made to the books, by whom, and when. If you are audited, that information can be retrieved easily and simply, without question as to how things were handled in the past.

On-demand reporting

Most business professionals have become accustomed to on-demand insights. Software tools allow you to generate reports in an instant rather than manually generating reports from a spreadsheet tool. This also gives you the flexibility to check into a client’s account in an instant when they inevitably call to ask about something on their invoice. It’s also a good tool to have for employee performance reviews, so you can easily determine pay increases and bonus offerings. Inventory tracking and inventory management becomes much easier with the right tools.

What are some accounting software challenges?

These are challenges you might run into if you choose accounting software that isn’t the right fit for your company. Consider these as you compare accounting software.

Multi-currency and multi-country support with tax and regulatory compliance

Some accounting systems are only built to manage finances within a specific country or in a select few currencies. Companies that often do business across two or more countries or in a separate currency should look for an accounting tool and software solution that meets those requirements.

When comparing accounting software, check to ensure that the software supports multi-currency and multi-country regulations as well as your local tax and financial regulatory statutes, so you can use those valuable tax features without much manual intervention. If they don’t, you’ll need to input exchange information by hand which could lead to errors.

Data security

Your accounting records are precious data and need to be protected. While paper ledgers aren’t hackable, they also aren’t secure from everyone inside your organization. Accounting software such as QuickBooks Desktop or QuickBooks Online provides greater data security for your business.

Cloud computing provides more security for accounting software than paper ledgers because they can be password protected and teams can assign granular user roles to ensure that the right people have the right access to the right data. The best cloud accounting software also provides the physical security of offsite databases, automatic data backups, and data encryption to protect the company’s privacy.

Reporting and analytics

Without the right data, it can be difficult to know exactly where your accounts stand and even tougher to make budgeting decisions and predictions. When looking for accounting software, you need to look for tools that offer in-depth reporting and analytics features.

In addition to providing export features to business intelligence software that gives stakeholders a full-spectrum view of how the company’s data impacts the overall business environment, many accounting software tools also provide dashboard reporting and financial analytics right in the tool. These features help accountants and bookkeepers track spend vs. income, outstanding and recurring invoices, cash flow, inventory management, financial statements and other KPIs critical to the company’s financial health.

What kinds of businesses use accounting software?

Accounting software is available in nearly as many shapes and sizes as there are company types. These are the main types of businesses that use accounting tools to manage their financial accounts.

• Commercial accounting: The most common type, commercial accounting software is used by both individuals and for-profit businesses to manage transactions, equity, etc. Commercial accounting software is often best-of-breed software designed for SMBs, mid-size businesses, and large companies that don’t deal with complicated regulatory or tax requirements.
• Nonprofit accounting: Nonprofit software is tailored for the specific needs of not-for-profit organizations. Sometimes called “fund accounting software,” it helps manage grants, tax-exempt transactions, and the stringent reporting requirements most nonprofit organizations face.
• Enterprise accounting: The majority of enterprise accounting solutions are designed for entities doing business internationally, which means they need to manage regulatory and tax compliance with widely varying requirements. Frequently, enterprise accounting software is deployed as an ERP. Theoretically, an enterprise-level accounting solution could be required for a nonprofit organization.

These three types of accounting software are used across the following major business types. When comparing accounting tools for your business, look for an accounting system that fits your particular needs, the complexity of financial records, and feature requirements.

Accounting firms

Accounting firms provide outsourced financial services to small businesses as well as those of all sizes that don’t have an in-house accounting department. Firms can either require businesses to use their preferred accounting software or request access to the company’s general ledger. Some accounting software is designed for agency use, while other software will require a new license for each company, making it more expensive for agencies who handle more than one company.

Small businesses and nonprofits

Small businesses will find increased financial visibility and easier records reconciliation when they switch from spreadsheets to a general ledger or core accounting software. Small businesses usually don’t start out with an accountant working in-house, but business owners who manage the company’s accounts unassisted will find that core accounting tools with available feature add-ons like payroll and invoicing can ease their pain. These systems place industry-standard financial accounting features behind the user-friendly interfaces, easing the transition when the team decides to contract with an outside accountant or bring a dedicated financial professional in-house.

Growing and mid-size businesses and nonprofits

A growing business has potential and hopes for future expansion, which can be confusing when buying accounting software. These teams need increased functionality and the ability to upgrade quickly but without the financial burden of buying a fully-featured enterprise solution that requires payment for features they do not yet use.

Some mid-size and growing businesses may find that an ERP designed for mid-size businesses will fit their needs while providing the opportunity for expansion in the future. Other teams may decide to put together a financial software stack built of best of breed software that shares data via API. A careful comparison of available features, add-ons, and pricing can help clarify these choices, as do recommendations for the best accounting software for your needs.

Enterprise and multinational businesses

The specific requirements of enterprise and multinational organizations include multi-currency and multinational regulatory requirements, supply chain, manufacturing, and business intelligence needs. Large or complex businesses should look for a fully-featured accounting tool or ERP that meets as many requirements as possible. Some enterprise businesses may even choose to work with a vendor to customize their ERP solution to ensure it has the functionality they need.

Enterprise-ready accounting software will automate and bring together many of the company’s financial tasks: invoice, supply chain, franchise, manufacturing management, transaction point payments and much more. These systems will also include valuable accounting analytics tools that will help with budgeting and forecasting and improving the company’s overall financial status.

How to create executive buy-in for accounting software

If you’re leading the initiative on software procurement, you’ll need to build a compelling case to company stakeholders on all of the advantages the new solution will offer. Below are a few talking points tailored to specific executives to help you get started.

CFO

Your CFO is the single most important person you’ll need to convince. They will likely be heavily involved in the new system, so you’ll need to ensure it offers a significant upgrade in functionality and lower price point than your current software. If you’re paying an outside accountant to manage your books, calculate the cost savings that moving your accounting in-house with a new solution will have.

CEO

Your CEO, like the CFO, will be concerned with the dollars and cents of this procurement effort. How many labor hours will the new system save? What will the month, quarter, or year-end close processes look like, and how long will it take to get those reports? Make sure the CEO and CFO agree because, without them, it will be difficult to make your case to the final stakeholder.

CTO

Your CTO likely doesn’t care about the features or functionality of the accounting solution you select, just as long as it can be easily integrated with the remainder of your technology stack. Look for solutions that offer an open API and a robust online knowledge base. You should also try to find software that shares a similar technical framework as your other mission-critical systems like your CRM.

Choosing the best accounting software

Trial

To truly understand which accounting software is best for your company before you buy, you, as a small business owner, will want to look for software vendors who are willing to let you peek behind the curtain with a free trial. With an application as complicated as accounting software, you’ll want to look for a trial that will provide you with enough time to port in some sample data, get a feel for major features, and test out the ease of use among multiple users. A free trial can be the difference between choosing an accounting software that meets your needs and spending all your time formulating workarounds for problem areas.

Case studies and referrals

Accounting software sales reps and marketing websites can tell you all about the benefits their software provides, but where’s the proof? Where’s the reassurance that they understand what a small business owner needs? The best accounting software vendors will be able to show their worth via case studies and referrals to current power users. If you’re not given access to real-life user feedback and ROI calculations, don’t be afraid to ask for it.

RFP

Your software selection team should formulate a request for proposals (RFP) early in the selection process and have it ready to send to accounting software vendors that you’re interested in. A good software RFP should contain:

• Specific business goals your team would like to reach with this software
• A list of must-have and nice-to-have features you’re looking for
• A list of specialized industry or regulatory requirements that this software will need to fit.

Finding the right accounting software for your business (conclusion)

Accounting software is a vital tool for businesses of all sizes, offering a range of features from core accounting to payroll, ERP, billing and invoicing, and project accounting. The key features of accounting software, such as accounts payable/receivable, asset management, bank reconciliation, cash management, departmental accounting, time and expense management, reporting, and budgeting and forecasting, provide numerous benefits. 

These include time savings, reduction in manual data entry errors, greater account visibility, multi-device access, real-time engagement, easier auditing, on-demand reporting, and more. However, businesses must consider challenges like multi-currency and multi-country support, data security, and reporting and analytics when choosing the right software. Remember, the choice of accounting software should be based on the specific needs of the business, the complexity of financial records, and feature requirements.

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