How does accounting software work?

By Team bluQube

Have you ever stopped to think about what's going on behind the image you see on screen?

 

 

How does accounting software actually work? How does any software work? We are so used to tapping away and keying in data, clicking some buttons and extracting information as and when we need it, have you ever stopped to think about what's going on behind the image you see on your screen?

Chances are no, you've never given it a second thought. And that's the beauty of modern accounting software and finance systems, these days they all just work. In most cases, they do everything you need them to and you're free to focus on the job at hand without having to worry about the software itself.

 

Demystify the tech Confused man at laptop illustration

That's all very well until you come to review systems and speak to potential suppliers - you won't really know what it is you're buying. Many suppliers like to keep the tech stuff a mystery, clouding it behind endless jargon hoping you won't ask any difficult questions.

And while the modern finance professional doesn't need to be a tech whizz, having at least a basic understanding of the tools at your disposal can't be a bad thing. If anything, it will open up opportunities to make better use of them and ask more of your supplier.

 

So, how does it work?

Simply put, software of any kind is a series of code that creates a logic. That logic is essentially a series of instructions that state when A happens, the result is B. This logic is then built upon, so rather than just A and B, there soon becomes countless actions and results.

 

Underlying it all is a database

man with magifying glass illustrationThe database is essentially a large storage facility. This is where all of your financial data is held, but alongside it, the database will also hold your software's logic.

However, a database is more than just a big pot. It also determines how the data is structured, which when it comes to accounting can be quite complex. Think of all the individual pieces of data that make up your finance system. Sales invoices, purchase invoices, purchase orders, assets and their values, their depreciation rates, users, authorisers, suppliers, supplier addresses... The list goes on and on and on.

All are separate pieces of data, but all are intrinsically interrelated in a magnitude of complexity. It's modern relational databases that make sense of all these data points and the relationships between them

These days, the majority of finance systems use 1 of 2 main databases; Oracle and Microsoft SQL. They both have their own advantages and disadvantages, SQL is often deemed a little simpler to manage but you can be tied into Microsoft products, whereas Oracle on the face of it can be a little more complex to work with, but gives much greater flexibility on the other tools you can use alongside it.

 

How does it end up on your screen?

The product logic that we mentioned earlier contains rules for how your data within the database is accessed and then blends the information with an additional layer of HTML code that renders it as a visual screen displayed on your computer for you to navigate. It's that HTML layer that allows a finance clerk to run reports at the click of a button and visualise the data via interactive dashboards and bold graphs. Without it, every finance professional would need to possess the skills to write detailed code in order to access even the most simple financial figures.

 

The early days of accounting software picture this illustration

In the past, when you purchased accounting software you were probably very much in the dark about what you were getting on the tech side of things, even more so than today. However, in reality, this didn't really matter because you didn’t have a choice anyway.

The structure of your data was much more rigid too, with everything held in static "files" that couldn't easily be changed and that stood separately from each other. Balances were calculated when the transaction was done and frozen at that point. It was quite difficult to get information out of systems and impossible to change your mind about how to structure the information as your business evolved.

But as technology progressed, thankfully things changed. As more processing power became available, the relational databases we have today became possible. Rather than each data set standing alone in separate files, your data could have tiers, hierarchies and dependencies. This meant financial reporting could be far more flexible, enabling you to drill down, drill up, jump around to related transactions and calculate balances at the point you run the report or load the screen.

How was accounting software delivered?

laptop illustrationAnother big drawback of the early accounting systems was how they were delivered. As a customer, you didn't have a choice as to the machines you could use. More often than not, the "terminal" would be delivered by the supplier as part of the product itself, loaded up with their software and their software only. This was all because software at that time had to be developed for a specific type of machine.

In some rare cases, a supplier may choose to offer their software on 2 different machines, but essentially these were 2 entirely separate pieces of software that required twice the development resource. Inevitably the cost of doing so would then be passed on to the customer and there would be so much resource tied up in simply maintaining the product, you couldn't expect much in way of product enhancements.

Things slowly advanced beyond this, but the biggest leap forward was the advent of the internet and then increasingly fast broadband speeds. This meant software didn't need to be located on the physical terminal, or even an in-house server, it could be instantly delivered to you remotely via the internet. Technology we now know as cloud computing.

Any colour, as long as it's grey

Old accounting systems also left a lot to be desired when it came to how they looked. Who remembers black screens with little lines of commands in green text? Hardly intuitive and user friendly. Thankfully, this all changed with the ability for software to output HTML code, as we mentioned earlier. HTML code populates an image on a pixel by pixel basis, allowing far greater combinations of layout and colour. This allowed your software provider to get much more creative with the layout and for the first time take the end-user (you) into consideration.

The other big benefit of HTML output is that it is the same code that makes up websites, meaning it's easily read by any internet browser. In turn, this means your accounting software can be viewed on any device with a browser, be it PC, Mac, tablet or smartphone, giving you much more flexibility with how you wish to work.

how does accounting software work

Where are we now?

Cloud accounting mobile accounting illustration

With broadband speeds steadily increasing, along with the spread of 5g cellular data, cloud systems are well and truly the industry standard for software delivery of any kind. At bluQube, over 80% of our customers opt to have their bluQube accounting software delivered via the cloud and when we speak to prospective clients, a requirement for anything other than cloud is completely unheard of.

It's no surprise that the cloud has taken off in the accounting software space. The finance department of any organisation can be a high-pressure environment. Working efficiently and quickly can make or break a business, with poor cash flow often the biggest killer of failing businesses. Cloud accounting eliminates disruptions caused by tech headaches or an internal struggle for in-house IT resource, with a dedicated supplier taking care of it all for you, in most cases outside of business hours.

Cloud software also works hand in hand with a remote way of working - enabling simple and secure browser-based access from anywhere in the world and on any device. A benefit we're truly seeing utilised post-pandemic.

Furthermore, the cloud typically brings with it big security benefits. Utilising large scale data centres with cutting edge security measures that would be unaffordable for 99% of businesses to manage in house. And if you were to pinpoint where your organisation stands to benefit most from these leading security measures, you would surely land on the finance department and the high-risk data held within your accounting software.

Interoperability

man thumbs up illustrationOf the other big advancements in accounting software, those around real-time integration (namely interoperability) provide significant leaps forward in how finance departments operate. Interoperable web-service data links found in modern software allow for information to be passed between your accounting software and other systems throughout your business in real-time. This allows you to incorporate wider data points into your financial reporting for more detailed analysis, with accurate up to the minute data giving you a true picture of performance.

In the past, to achieve anything close to this you would have had to have hoards of data entry staff re-keying and duplicating information from one system to another, which only brought further challenges with speed and accuracy. In some cases, a lesser alternative would be to buy into a full suite of software from a single supplier, which inevitably meant compromising on other areas of the software and chained you to that one supplier regardless of the service you received.

Automation and artificial intelligence

More recently, we've seen automation, AI and machine learning become more widely adopted within the finance office. Tools like OCR (optical character recognition) enable invoices to be scanned and automatically entered into your finance system, without the need for manual data entry. Additional automation then matches the input PI with a PO and can notify an authoriser or push it on to be paid, without any human interference. All while machine learning actively learns from any mistakes made, improving its efficiency over very little time.

What is the purpose of accounting software? crowd cheering illustration

While the prospect of increased interoperability and automation may leave some finance professionals scared for the future of their roles, emerging technologies along with established tech all share the same key purpose: to make our lives easier. Modern accounting software simply does this better than its predecessors ever did.

Finance professionals at all levels are undoubtedly clever and valuable individuals. Tying them down with data entry, manual re-keying, fighting IT fires, or collating paper reports is unarguably not the best use of their resource. Accounting software is here to free your finance team and enable them to focus their expertise in new ways, thinking both strategically and creatively to provide value in ways software never could.

Want to see how the right accounting software could free your finance team? Book a demo to secure a free consultation with a member of our customer engagement team.

 

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