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Digital Accounting: Overview, Types, Importance and its future

Digital Accounting

Digital accounting has transformed financial management for businesses, offering real-time access to financial data and improving accuracy. Businesses now have access to advanced software and services that have revolutionized how financial data is managed and analyzed.

With digital accounting, accountants can spend less time on repetitive tasks and more time analyzing data and providing valuable financial advice to their clients.

Here, we’ll provide an overview of digital accounting, including its importance and the available digital accounting services. 

We’ll also discuss how the government’s Making Tax Digital initiative will benefit the future of taxation and what software accountants use to provide their services.

What Is Digital Accounting?

Digital accounting means creating, storing, and transferring financial information in an electronic format, making it accessible and usable through digital systems. As we can see, it is changing the financial management and reporting game rapidly.

We can now gain real-time insight into a company’s financials through cutting-edge digital systems. With innovative technologies such as cloud computing, digital accounting automation, and advanced analytics, we can gain a deeper understanding of financial data.

What Is A Digital Accountant?

The word “digital accountant” automatically comes in when we talk about digital accounting. So what is a digital accountant? A digital accountant is an accounting professional who uses digital technology to perform their work. 

This includes using digital accounting software to create, store, and disseminate financial information and other digital tools to optimize  financial processes and increase efficiency. 

The concept of the digital accountant was first introduced by the Association of Chartered Certified Accountants (ACCA) in 2016. It was part of seven quotients designed to represent the skills necessary for accountancy and finance professionals to remain relevant.

What Software Do Accountants Use?

Accountants use various software tools for their day-to-day accounting tasks. It is normal to get confused about which one to go for. Here are some of the most popular accounting software used by accountants:

  • QuickBooks Online
  • Xero 
  • FreshBooks 
  • Sage 
  • Zoho Books 
  • Patriot Accounting 
  • Deskera Books
  • AlignBooks 
  • ZarMoney 
  • Bonsai 
  • myBooks
  • ART Accounting 
  • Seed FlexiFinancials 
  • Intuit Turbotax 

As one of Xero’s 1.5 million satisfied users, we can attest to its efficiency and reliability in delivering real-time, data-driven financial insights. 

At ABM, we specialise in digital cloud accounting solutions with a particular focus on Xero. With our professionals, you can transform your accounting practices and take your business to the next level.

Types Of Digital Accounting Services

Whether it is a  small business or a large corporation with digital accounting services, you can tailor them according to your budget and specific needs. Here we will discuss six demandable digital accounting services:

Digital Bookkeeping Service

Maintaining a record of all financial transactions is crucial for the success of any business. This is where bookkeeping comes in. It involves organizing and managing financial records systematically. 

Accounts payable

Companies often purchase goods or services from vendors or suppliers on credit to keep their business running smoothly. The money owed for these purchases is a liability and is referred to as accounts payable. Remember that efficient accounts payable management is indispensable for maintaining a healthy cash flow and avoiding costly penalties resulting from late payments.

Accounts Receivable

Tracking accounts receivable is vital for maintaining a healthy cash flow and proactively addressing late payments from customers. As an asset on the company’s balance sheet, accounts receivable represent the money that customers owe for goods or services provided on credit.

Payroll Processing

Businesses can save time and ensure accurate and timely payment of their employees by outsourcing payroll processing. Payroll processing includes the calculation of gross pay, the deduction of taxes and other withholdings, and the issuance of paychecks or direct deposits to employees

If you are looking for timely payroll processing, our comprehensive financial services include payroll processing, allowing you to focus on other critical aspects of your business.

Tax Accounting

In tax accounting, professionals are responsible for preparing tax returns and ensuring timely payment of taxes for individuals, businesses, corporations, and other entities. By leveraging their expertise, tax accounting professionals can accurately calculate taxes owed and provide recommendations to minimise tax liability while maximising benefits.

Chartered Accounting

Businesses and individuals can trust Chartered Accountants to provide accurate, reliable, and expert financial advice and services to help them achieve their financial goals.

Importance Of Digital Accounting

Digital accounting is becoming increasingly important in today’s business landscape. Knowing the importance can help you make precise decisions regarding your business finance. Here are some key reasons why digital accounting is important:

Time and Cost Savings

With digital accounting, you can save time processing online transactions, preparing reports, and compiling facts and figures in minutes. It also automates previously manual tasks, reducing the cost of the business.

Streamlining Operations

Today, accounting firms can easily track billable hours and check project status quickly with digital processes. Automating tedious accounting tasks keeps talented professionals focused on meaningful work and improves efficiencies by streamlining operations. 

Improve Efficiency And Accuracy

The future of accounting is digital, and internet-based accounting systems will eventually replace traditional accounting methods. To stay relevant, accountants must adapt to new technologies and tools to improve efficiency, accuracy, and client satisfaction. 

Transparency and Consistency

When we talk about geographically fragmented high-growth organisations, digital accounting plays a vital role in transparency and consistency. 

How Making Taxes Digital Will Benefit The Future?

Making Tax Digital (MTD) is a UK government initiative to modernise the tax system by requiring businesses to keep and submit digital records. Here are some key benefits of making taxes digital:

  • Reduce transcription errors
  • Increase efficiency
  • Create a transparent taxation system
  • Reduce administrative burden for taxpayers and tax authorities
  • Make tax administration faster and more efficient, leading to the more accurate recording of figures with less room for error.
  • Foster better relationships between tax authorities, policymakers, and taxpayers through a foundation of transparency, accountability, and trust.
  • It is ultimately increasing the overall efficiency of businesses.

Frequently Asked Questions (FAQ):

What Are The Five Pillars Of Accounting?

The 5 pillars of accounting, also known as the 5 accounting elements, are the fundamental building blocks of accounting. They are as follows: Assets, liabilities, Equity, Revenue, and Expenses.

Which Accounting Software Is Most Popular Among Accountants?

As per the latest trends, Intuit’s QuickBooks Online is one of the most popular accounting software options among accountants. The trendily popular among small businesses and their bookkeeping and tax professionals. With cloud-based access, QuickBooks Online offers an easy-to-use interface and a range of features.

Can You Provide An Example Of Tax Accounting?

Let’s say you bought an asset for $1000, with a 10% depreciation rate for financial reporting and 20% for tax purposes. If your profit before depreciation and tax is $500, your accounting profit is £400 (£500 – £100 depreciation for financial reporting). However, for tax accounting, you’d need to calculate depreciation based on the tax rate of 20%, resulting in a higher depreciation expense and a lower taxable income. 

What Are The Steps To Set Up Making Tax Digital?

To set up Making Tax Digital, you can sign up through a recognised provider that offers software compatible with Making Tax Digital for Income Tax. You should contact your provider to sign up for this service if you already have the software. We recommend that you speak to your agent, if you have one, about signing up. Doing so can ensure you comply with the government’s regulations for submitting digital tax records.

End Note

We hope this overview has given you a better understanding of how businesses can benefit from modern accounting practices.

At our company, we understand that choosing the right digital accounting software can be overwhelming, especially with the vast number of options available in the market. That’s why we’re here to help you make the right choice for your business. We’ve got a team of skilled software professionals ready to assist you every step of the way. Our software professionals are accessible and will work with you to understand your business’s unique needs and budget.

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