Definition: Accounting software

An accounting program supports the user in the preparation of monthly accounting. The scope of the bookkeeping depends on the one hand on the chosen legal form and on the other hand on the exceeding of certain limits. For a GmbH, the accounting obligation arises, for example, from the Commercial Code (HGB). It is also the responsibility of the company’s managing director to draw up a balance sheet at the end of the year.

Other accounting obligations are determined by the tax code (AO), which is relevant for tax law. Regardless of the legal form, commercial companies must prepare monthly bookkeeping according to § 141 AO if they achieve sales of more than 600,000 euros in the calendar year or can generate a profit of 60,000 euros. If these limits are not reached, the company is a small business.

For small businesses and freelancers, there is no obligation to create legally compliant bookkeeping, neither due to the legal form nor the law. You determine your tax profit by comparing operating income and operating expenses.

These entrepreneurs can make things easier for themselves if they use an accounting program.

Importance of Accounting Software

The advantages of an accounting software

The advantages of a software for bookkeeping compared to a manually operated bookkeeping mainly lie in the saving of effort and time. In addition, they are less error-prone and prevent omissions.

The user of an accounting program also has an advantage when submitting the advance VAT return. In the meantime, the tax offices only accept advance VAT returns that they have received electronically. Even a simple accounting program has the prerequisites that enable the user to submit the advance VAT return to the tax office on time. For the entrepreneur who does not use accounting program, the only option left is to submit the advance VAT return via ELSTER. This does not cost anything, but it takes additional time.

What else does a user benefit from?

Anyone who uses suitable program to do their monthly bookkeeping can take advantage of the following features of the program.

  • The user can use the dashboard to get a complete overview of the economic and financial situation of his company at any time.
  • The receipts can be easily digitized. The user scans the documents. The accounting program ensures that these are stored in a legally secure manner.
  • When creating the invoices, the user of an accounting program can assume that they meet the requirements of the principles of proper accounting. For example, a small business owner is advised that he is not allowed to include sales tax on his invoices.
  • An accounting program also supports the user’s contact management. Business partners and customers can be stored in a database. If necessary, the user can quickly access the contact details.

Accounting software for a small business

The accounting obligation results from the provisions of the Commercial Code (HGB), among other things. According to this, the merchant who operates a trade must create an accounting. Commercial law defines a trade as any business that requires a business to be set up in a commercial manner.

A trader fulfils the commercial law requirement if he exceeds the limits of § 141 AO. If sales figures and profit are below the limits specified there, the entrepreneur is considered a small business operator.

A small business owner does not necessarily have to create accounts. However, tax law does not release him from the annual obligation to determine a taxable profit. The small business owner’s profit results from a comparison of operating income and operating expenses.

The small business owner receives support from an accounting program. With the software for accounting, he can do the entire accounting himself.

First, the user selects the chart of accounts and the accounting year in the accounting software for small businesses. During the monthly bookkeeping, the small business owner can store recurring bookings. If, for example, he transfers the monthly office rent for the first time, the user creates this once in the recurring bookings. The program generates the booking automatically every month. For him, this approach has two effects. He saves time and can be sure that the expenses will not be forgotten.

In addition, the accounting software for a small business is equipped with another technology. The accounting program for small businesses takes into account, for example, that no sales tax may be shown on the invoice. The small business owner is also advised that he must provide his invoice with a note that informs the recipient of the invoice of the small business community.

Accounting software for freelancers

Which accounting software supports the user in creating his monthly bookkeeping? This is the question a freelancer must ask himself. Neither commercial law nor tax law force him to keep accounts. But even a writer or a journalist must determine their tax profit and submit a tax return.

A simple accounting program gives the freelancer a quick and compact overview of the income and expenses that result from his self-employed activity.

After entering the monthly figures, the freelancer can generate a business analysis or a preliminary income surplus calculation at the push of a button. In this way he quickly knows whether there has been a profit or a loss for the selected period. On the basis of this information, the freelancer makes important investment decisions.

Accounting program for Excel

A simple accounting program takes advantage of the advantages that Excel offers. A user benefits from solutions for invoicing and dunning. However, an interface is required for the transmission of tax returns and the tax office. The user can solve this problem if he works with a tax advisor, for example.

The user creates the bookkeeping in a free Excel tool. The figures are made available to the tax advisor. The tax specialist checks the figures and prepares the advance sales tax returns, the income surplus accounts and all the necessary tax returns.

Accounting software online

The alternative to an accounting program is the software that creates the accounting online. Every small business owner and every freelancer who wants to do their bookkeeping quickly, safely and cheaply benefits from this option.

The accounting software can be operated online without prior knowledge. The user takes advantage of the cost savings that result from not hiring a tax advisor or an accounting office.

Summary

  • Bookkeeping software is used to support the user with the monthly bookkeeping.
  • According to the law, small businesses and freelancers are exempt from having to prepare accounts.
  • Even so, small business owners and freelancers get their benefit when they create their profit using a booing program.
  • An accounting program gives the user a complete overview of his economic situation. At the push of a button, the user receives, for example, a business analysis or a preliminary profit determination.
  • In addition to saving time, the lower susceptibility to errors when recording income and expenses is an advantage.
  • The advance VAT return can be sent directly to the tax office via an interface.
  • The digital document management of an accounting software also includes the legally compliant storage of the documents. In this way, the user can prevent disadvantages that would arise from improper storage during a company audit .
  • The accounting software can be used by freelancers and small businesses to create the income statement. Before submitting the data to the tax office, he knows whether he has to pay tax on a profit or has made a loss.
  • The accounting program also supports the decisions of important business planning. If a freelancer wants to buy a new PC, for example, he receives the relevant information about the liquidity of his company through the evaluations of his accounting program .
  • The user can choose an accounting program based on Excel or the online version of an accounting program.
  • Both versions enable the user, for example, to conveniently generate invoices. The invoice complies with the good regulations and contains all the requirements of sales tax law.
  • With the program a user can get a quick overview of his accounts receivable. In order to avoid open items, the dunning process can also be initiated quickly and conveniently with the program.

The CPA exam includes 324 multiple-choice questions, 20 task-based simulation questions, and three writing sections. These are divided into four main areas: Audit and Attestation (AUD), Financial Accounting and Reporting (FAR), Regulation (REG), and Business Environment and Concepts (BEC). Each part is taken individually, and candidates can choose the order in which they are taken. Once a candidate has passed their first section of the exam, the remaining three must be passed within 18 months. The American Institute of CPAs (AICPA) administers and rates the test and rates each part on a scale of 0 to 99. You must have a minimum of 75 points to pass each section. Multiple choice questions count for 70% of the total score, Simulations are 20%, and written communication is 10% of the final result. Each question is weighted according to the level of difficulty so that the multiple-choice questions and going through the simulations and written parts result in an incorrect score. The total time for the test is 14 hours.

Cpa Exam
Cpa Exam

Financial accounting and reporting

The FAR section tests knowledge and understanding of the accounting framework used by corporations, non-profits, and government agencies. It contains 90 multiple-choice questions and seven task-based simulations that use real work situations to test your skills. (For related reading, see: What is the Average Salary of an Accountant?)

This section covers the standards for financial statements, what should be included in the statements, and how accounts should be recorded and reported. Government agencies, non-profits, and other types of organizations. Test takers are expected to prepare financial statements, including balance sheets, profit and loss statements, retained earnings, equity, comprehensive income, and cash flows, and review source documents and enter data in sub and general ledgers. (For more information, see: Investopedia Financial Statements Tutorial.)

Test takers must demonstrate that they understand how accounting standards are set and the roles of various government and industry groups such as US securities. And the Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), and the Governmental Accounting Standards Board (GASB).

For most people, FAR is the hardest part of the entire CPA exam. You have up to four fours to take. (For related reading, see: What’s the Difference Between a CFA and a CPA?)

Auditing and attestation

The other four hour segment, AUD, is a bit easier, especially if you tackled FAR first. It also has 90 multiple choice questions and seven task-based simulations. It includes planning and reviewing engagements, internal controls, obtaining and documenting information, and preparing communications.

As with FAR, test takers must demonstrate international accounting standards, particularly the Difference between International Standards on Auditing (ISA) and US auditing standards. You need to identify situations that may be unethical or a violation of professional standards and determine the appropriate action to take in those situations. and identify key risks in a financial information technology environment. (For more information, see AICPA International Financial Reporting Standards (IFRS).
AUD also includes standards for audited financial reporting, government audit standards, compliance with laws and regulations, and internal controls. Accountants need to know, along with other communication standards. In this section, you will also test your knowledge of the ethics and independence required by the AICPA, the Sarbanes-Oxley Act of 2002, the Government Accountability Office, and the Department of Labour. (For more information, see: CPA, CFA, or CPF: Choose Your Acronym Carefully)

Regulation

You can take REG for up to three hours. It covers ethics and professional responsibility, business law, tax procedures and accounting, and federal taxes for individuals, corporations, and real estate transactions. This section contains 72 multiple choice questions and six task-based simulations.

Test takers must demonstrate that they understand auditors’ professional and legal responsibilities and the legal implications of business transactions in relation to accounting, auditing, and financial reporting. This section deals with federal and widely used state laws. They must show you that you understand the rights, obligations and liabilities of debtors, creditors and guarantors, the Internal Revenue Service (IRS) review and complaint procedure, and alternative minimum tax and estate and gift taxation (see for more information See: Investopedia’s tutorial on The Series 65 Exam.)

Business environment and concepts

BEC is arguably the easiest section, and most candidates pass it on on their first try. This three-hour section covers corporate structures, economic concepts, financial management, and information technology. You need to understand that you understand corporate governance, financial risk management, financial management processes, information systems and communications, strategic planning and operations management, and understand global business’s economic concepts and how they affect a company’s business strategy. Test takers are asked to evaluate the impact of business cycles on a company’s operations and evaluate operational and quality control initiatives to measure and manage performance and costs. (More on this under:

Expect to become familiar with the rights, duties, and ethics of the board of directors, officers, and other employees of a company. .. Questions also include risks to information systems and technology, the Treadway Commission’s Committee of Sponsorship Organizations (COSO), and corporate responsibility and financial information disclosure under the Sarbanes-Oxley Act of 2002.
The BEC section has 72 multiple choice options. Questions and three written communication elements, with test participants responding to a work scenario in a letter or memo format. This is used to assess candidates’ writing skills and their organization, clarity, and conciseness. (For related reading, see How To Become a CPA.)

The final result

Even without the required schooling and work experience, the CPA test-takers did their job for them. But the reward is a respected job title that is usually accompanied by a significantly higher wage level.