Accounting System: Definition, Types & Benefit

Accounting system is a platform that helps companies manage and track their financial transactions, including expenses, income, and financial reporting. Automating data entry and generating reports ensures accurate financial records, simplifies tax reports, and improves decision-making.

Using accounting software has become a game-changer for businesses today. More and more Filipino companies are turning to it to simplify financial management, with the global market set to hit $735.94 billion by 2025, according to Ace Cloud. 

Traditional accounting methods often lead to human errors, slow processes, and outdated information. Without proper accounting software in place, businesses can face headaches in managing cash flow, generating accurate reports, and staying compliant—problems that modern accounting software can solve madaling-madali.

This article breaks down what an accounting system is and how software can tackle financial challenges. It also shows how accounting software improves productivity and why it’s crucial for shaping the future of Philippine enterprises.

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What is an Accounting System?

An accounting system is a process for recording a business’s financial information, such as income, expenses, taxes, inventory, sales, and payroll. Accountants can manage these records manually with pen and paper or use digital tools for greater efficiency.

This system supports financial management by generating accurate reports, offering insights into a company’s financial health, and enabling informed decision-making. Key components include:

• Accounts payable
• Billing
• Accounts receivable
• Fixed assets
• Inventory
• Payroll

A well-organized accounting system helps businesses maintain accurate records, stay financially organized, and make better strategic choices.

Accounting System vs. Accounting Information System

An accounting system is a way businesses record and manage financial activities, like tracking income, expenses, assets, and liabilities. It can be done manually (using paper) or digitally (with software). Its main job is to organize and summarize financial data for reporting purposes.

An accounting information system (AIS), on the other hand, is a more advanced version that uses technology to handle financial data. It doesn’t just track and record finances—it also processes, stores, and shares the data, making it more accessible and efficient. An AIS includes:

• People: Those who use the system.
• Processes: Steps to collect and manage data.
• Data: All the financial information.
• Software: Tools to process the data.
• Hardware: Computers and networks that run the system.
• Security: Safeguards to keep data accurate and safe.

Key Difference

An accounting system is a basic tool for managing finances, while an AIS combines accounting with technology for better efficiency, accuracy, and decision-making. For example, with an AIS, businesses can get real-time reports and improve internal controls.

Accounting software automates tasks like bookkeeping, invoicing, tracking expenses, and generating financial reports, saving time and reducing errors in the process.

Types of Accounting System

Accounting systems differ in how transactions are recorded. Here’s an overview of two common types of accounting system:

1. Double-Entry Accounting System

In double-entry accounting, each transaction is recorded twice—once as a debit and once as a credit in different accounts. This system is popular among businesses for its accuracy and reliability. Using accounting software can simplify double-entry bookkeeping system.

Benefits include:

• Easier error detection and correction
• Reduced risk of fraud
• Clearer profit and loss analysis
• Simplified preparation of financial statements

2. Single-Entry Accounting System

Single-entry accounting involves recording transactions just once, either as income or an expense. This system doesn’t usually require software and is manageable with simple tools like spreadsheets. While it’s less detailed than double-entry, it has some advantages:

• Simpler bookkeeping process
• Easier for small businesses to manage on their own

If the differences between those two types are made into the table, here’s how:

While single-entry systems cover basic reporting, double-entry systems are better for larger businesses, providing in-depth financial analysis and insights to support more informed decision-making.

Meanwhile, based on the methods, accounting system has three different types:

1. Manual system

A manual accounting system involves recording transactions by hand, using a general ledger. It’s one of the oldest forms of bookkeeping and doesn’t require a computer or software. In a manual system, financial transactions are added to the ledger chronologically. 

You’ll also need to keep track of physical invoices and receipts to ensure accuracy. While simple and straightforward, this method can be time-consuming and prone to errors compared to more modern solutions.

2. Computerized accounting system

Computerized accounting systems have grown in popularity thanks to computers and accounting software. It quickly records and stores transactions, and can even automate tasks like payroll and managing accounts payable.

Additionally, many computerized and cloud-based systems now incorporate specialized tools, such as revenue recognition software, to help businesses manage and recognize their income according to accounting standards.

3. Cloud-based accounting system

A cloud-based accounting system is essentially a computerized system that runs on remote servers. The advantage is you can access your financial data from anywhere with an internet connection, often through mobile apps or web browsers. 

This system offers the same features as traditional software—like invoicing, expense tracking, and financial reporting—with added flexibility and cost-effectiveness.

Regardless of the system you choose, each offers benefits that can streamline your accounting process and improve efficiency.

Benefits of Accounting Systems for Businesses

A computerized accounting system is important in modern business operations, offering benefits that contribute to efficiency, accuracy, and strategic decision-making. Here are some key reasons why accounting software is essential for businesses:

1. Automation of financial processes: Accounting software automates repetitive tasks like invoicing and payroll. This software saves time and reduces errors associated with manual data entry.
2. Enhanced accuracy and compliance: By minimizing errors and ensuring consistency in data entry, accounting software helps businesses maintain compliance with basic accounting principles and tax regulations to reduce the risk of penalties.
3. Real-time financial insights: Accounting software provides visibility into key financial metrics and trends, enabling businesses to identify growth opportunities, allocate resources effectively, and mitigate risks.
4. Scalability and flexibility: Accounting software adapts to evolving business needs and seamlessly scales to support growth, whether expanding into new markets, adding product lines, or adjusting organizational structure.

By automating key functions, ensuring compliance, and offering real-time insights, these systems empower businesses to allocate resources efficiently and adapt to growth with confidence. Leveraging accounting software ultimately leads to a more agile and resilient business capable of meeting changing market demands.

Features of Accounting Software

Accounting software should possess a range of features and functionalities to meet the diverse needs of businesses. Here are some essential features of an accounting system that businesses typically require:

1. Expense tracking: The software should allow users to categorize expenses, capture receipts electronically, and reconcile expenses with bank transactions. Advanced expense tracking functionalities may include mileage tracking, vendor management, and approval workflows to streamline expense management processes.
2. Invoicing and billing: It should support customizing invoices with company branding, itemizing products or services, and integrating with payment gateways for seamless transactions.
3. Payroll management: The bookkeeping system should offer payroll processing capabilities, including calculating wages, managing deductions and benefits, generating pay stubs, and filing payroll taxes.
4. Risk management and compliance: It aids in risk management by maintaining accurate records and automating compliance tasks. It helps identify potential risks and ensures regulatory compliance, safeguarding assets and maintaining stakeholder trust.
5. Revenue management: This software provides insights into sales performance, pricing strategies, and customer profitability. It enables revenue tracking, forecasting, and analysis to facilitate revenue enhancement and cost reduction efforts.
6. Financial reporting and analysis: Standard reports such as income statements, balance sheets, and cash flow statements should be available, along with customizable reporting options to meet specific business requirements.

Accounting software should offer a comprehensive suite of features and functionalities that address the diverse needs of businesses, from basic accounting tasks to advanced financial management and analysis capabilities.

How Accounting System Works

Accounting information system uses various technologies to automate and streamline financial processes, enabling businesses to manage their finances more efficiently and effectively. Here’s an overview of how accounting software typically functions:

• Data entry: Financial management software allows users to input financial transactions electronically, covering sales invoices, payments, and journal entries.
• Automated recording: Some software automates data entry through features like OCR and bank feed integration.
• Processing: The system processes transactions based on set rules and categorizes them into relevant accounts.
• Classification: Automated workflows ensure consistent and accurate transaction classification.
• Calculations: The software calculates sales revenue, taxes, and account balances from the entered transactions.
• Posting: It automatically posts calculated values to the general ledger, reducing errors and improving efficiency.

These systems save time and reduce errors by streamlining data entry, ensuring consistent classification, and providing reliable calculations. Ultimately, bookkeeping systems empower businesses to focus on strategic growth.

Signs that Your Business Needs Accounting System

Several signs or problems can emerge within companies that signal the need for accounting software. Here’s a closer look at some of these indicators:

1. Manual data entry errors

If your company is experiencing frequent errors in financial records due to manual data entry, it may be a sign that you need accounting software. Manual entry is prone to mistakes, leading to inaccuracies in financial reports and potential compliance issues.

2. Time-consuming processes

If your employees spend excessive time on repetitive accounting tasks such as invoicing, reconciliations, or generating reports, this indicates inefficiencies in the process. Accounting software can automate these tasks, saving time and improving productivity.

3. Difficulty in tracking expenses

Companies struggling to track expenses effectively, especially in cases where there are multiple payment methods or reimbursement processes, may benefit from accounting software. These systems streamline expense tracking, categorization, and reconciliation, providing better visibility into spending patterns.

4. Limited financial insights

Businesses that lack real-time access to financial data or struggle to generate comprehensive reports may find it challenging to make informed decisions. Accounting software provides timely and accurate financial insights, enabling better decision-making and strategic planning.

5. Lack of integration

If your company’s accounting system operates in isolation from other business functions such as inventory management, sales, or CRM, it can lead to data silos and inefficient workflows. An integrated, robust accounting system facilitates seamless data exchange between systems, improving operational efficiency and accuracy.

6. Dependency on paper-based records

Relying on paper-based records or outdated accounting methods can hinder productivity and increase the risk of data loss or theft. Accounting software digitizes financial records, providing secure storage, easy retrieval, and backup options to safeguard critical information.

If you need a guide to accounting software that can provide you with more well-rounded choices of the most well-known accounting systems in the Philippines, read further on the best accounting software for Filipino businesses here.

HashMicro Accounting Software as a Comprehensive Financial Management Solution

HashMicro offers the best accounting system in the Philippines, designed to simplify and automate accounting processes for businesses of all sizes. It offers many features to facilitate efficient transaction tracking, invoicing, expense management, payroll processing, tax compliance, and financial reporting.

HashMicro is a principal company known for its standardized systems and commitment to delivering high-quality solutions. Trusted by over 1,750 clients, it proves HashMicro Accounting Software’s credibility and effectiveness in meeting businesses’ diverse needs.

This software covers end-to-end business processes, offering comprehensive features, such as:

• Transaction tracking: Effortlessly track and record all financial transactions in real-time, whether you’re using single-entry or double-entry accounting for precision.
• Invoicing: Simplify your payment process by creating, sending, and managing invoices with ease.
• Expense management: Gain control over business expenses, helping you stay within budget and keep your finances healthy.
• Payroll processing: Automate payroll calculations to ensure timely and accurate payments for your employees.
• Tax compliance: Easily stay BIR-compliant by automating tax invoice calculations and reports, ensuring you’re always in line with local regulations.
• Financial reporting: Get valuable insights with detailed financial reports that help you track and improve business performance.
• Integration capabilities: Seamlessly integrate with systems like manufacturing, sales, purchasing, CRM, and HRM, creating a unified platform for managing your entire business.

With its comprehensive features and high adaptability, HashMicro helps businesses enhance productivity and competitiveness in the dynamic market through effective and accurate corporate financial management.

Interested in discovering how much HashMicro’s robust accounting software will cost your business? Try our pricing calculator for a personalized estimate now by clicking below.

Conclusion

An accounting system helps businesses manage finances, make better decisions, comply with regulations, and plan strategically. It simplifies tasks like tracking transactions, managing expenses, handling payroll, and ensuring tax compliance, which helps businesses stay accurate and competitive.

HashMicro offers an all-in-one ERP solution that includes all the essential features mentioned above. HashMicro Accounting Software allows businesses to simplify their accounting processes, gain actionable insights, and confidently drive growth.

Discover how HashMicro’s solution can revolutionize your financial management processes and try the free demo now!

FAQ about Accounting System

• What are the top accounting software options available in the Philippines?

  The Philippines offers several robust accounting software options tailored to meet local business needs. Popular choices include HashMicro, known for its robust and comprehensive customizable features; QuickBooks, known for its user-friendly interface and comprehensive feature set; Wave, which is free and ideal for small businesses; and MYOB, which offers efficient bookkeeping and tax management capabilities.

• How do cloud-based accounting systems benefit businesses in the Philippines?

  Cloud-based accounting systems offer numerous benefits to businesses in the Philippines. These benefits include:
  1. Enable real-time processing and data handling.
  2. Improve accessibility, allowing use from any device with an internet connection.
  3. Include features like automated backups and data recovery.
  4. Streamline accounting processes.
  5. Enhance data security to protect financial information.
  6. Support remote work capabilities.

• What should businesses consider when integrating an ERP system with their accounting system?

  When integrating an ERP system with accounting software, businesses should consider the compatibility of the ERP system with existing accounting solutions, the ability to handle multi-company and multi-currency transactions, and the ease of integration with other business processes.

• What are the common challenges faced by businesses in the Philippines when using accounting system?

  Businesses in the Philippines face several challenges when using accounting software, such as:
  1. Requires a stable internet connection for cloud-based solutions.
  2. Challenges in navigating complex software interfaces.
  3. Insufficient training on software usage.
  4. Lack of specific features needed for diverse business operations.
  5. Importance of selecting software tailored to the business’s specific needs.