Specifics of Financial Accounting Software

Financial Accounting Software

Financial accounting software is a part of accounting software system that keeps tracking of company's financial transactions.

The main purpose of financial accounting software is:

  • collecting financial transactions;
  • recording financial transactions,
  • summarizing financial transactions, and 
  • representing financial transactions in financial statements and reports.

Companies use financial statements to show outside the company their financial performance, for example, to creditors, investors, suppliers, and customers. Creating external statements and reports is one of the essential distinctions financial accounting software from managerial accounting software that is designed to prepare detailed reports and forecasts for company's managers working inside the company.

Financial accounting software generates four external financial statements that cover a specific period such as a month, quarter, or year:

  • income statement (profit and loss statement);
  • cash flow statement (on an income statement: Revenues - Expenses = Net Income); 
  • statement of stockholders' equity (statement of retained earnings); 
  • balance sheet (on a balance sheet: Assets = Liabilities + Stockholders’ Equity).

Financial reports are a broader concept than financial statements.

In addition to the financial statements, financial accounting software is designed to create:

  • the company's annual report to stockholders, 
  • the company's annual report to Securities and Exchange Commission (Form 10-K), 
  • the proxy statement, and other financial information.

Software providers study in details the legal requirements and financial accounting standards established by both the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to meet the US internal and external financial accounting and reporting standards.

Key benefits of using financial accounting software:

  • automating the process of generating external financial statements and reports; 
  • continuous managing and monitoring of cash flow; 
  • avoiding errors that can be evolved from the manual data entry; 
  • performing the real-time financial analysis; 
  • consistently providing the impeccable financial information.
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