It seems like accounting and tax software are getting more advanced every few months. It’s amazing what these programs can do and there is a constant stream of new applications that connect with the software to offer all kinds of added functions. It makes some people wonder if they even need an accountant or if they should just do it themselves on their smartphone.
Sadly, some of the new technology out there is being marketed as a do-it-yourself solution, when it should really only be used by someone with accounting knowledge. At least, someone should review the results with knowledge and experience. Like many DIY leaky faucets and burnt gourmet meals, you can get some expensive accounting mistakes when the software makes you overconfident and you’re not quite sure how to tell if it’s working or not.
Garbage in Garbage out
No matter how powerful a software program is, the information you put in will determine the information you get out. One of the biggest problems people run into when they DIY their accounting is not knowing the principle behind the entries they are making.
While you trust the software to work, the software also trusts you to make it work. If you enter an expense into a certain category – or put an amount in a certain box on your tax forms – the software has to assume it’s correct.
So Much to Analyze
It’s the information age. As accounting software gets more powerful, it can generate even more information for you. A whole bundle of management reports at the click of a button? Sounds great, right? But what you need isn’t just information. Information is pretty useless if you can’t analyze and interpret it.
What you really need is something you can take action on to make decisions. Whether it’s a business decision about improving cash flow or a personal money management decision, information is only as good as your ability to use it. This is where your accountant can help; they know how to break down those hieroglyphic financial reports and help you make actual choices.
How Technology Makes Your Accountant Better
As you can probably tell, I don’t believe that technology has replaced your accountant. What it can do is make your accountant’s job more efficient and make it much easier for you to work with him or her. Technology is a beautiful thing when it’s used correctly.
If you’re starting from scratch, it’s a good idea to ask your accountant what program they recommend. If you use what they are most familiar with, it makes things even easier. They can also help you get set up, so you have the right chart of accounts. This is where the technology is really helpful. You can set up a workflow that minimizes errors and time spent on manual data entry. Here’s an example:
Your accountant recommends QuickBooks Online> They help you set it up with all the accounts you’ll need> You connect your bank and credit card accounts to automated bank feeds> transactions load directly from the bank, avoiding manual entry> You classify the transactions you know and place the ones you don’t into a holding account like “ask my accountant” for follow up > Have your accountant review periodically> Your Accountant or tax professional uses the file from your QBO to produce financial statements and tax returns, reviews them for accuracy, and discusses the implications with you.
Accounting software is a great tool and a terrible replacement for real people. Don’t make the mistake of thinking that it’s foolproof. Used together with an accounting professional, it can be a lifesaver.
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My name is Noel Lorenzana, and I’m available to discuss your accounting questions. I’m an Illinois licensed, Registered Certified Public Accountant with over 25 years of experience. I’m dedicated to providing outstanding tax and accounting services to individuals and small businesses. Contact me for a consultation.
The information presented in the above article is general in nature, and not warranted or guaranteed. Your situation is specific to you alone, so be sure to speak with a Certified Public Accountant or a trusted tax advisor.
