From small startups to large corporations, bookkeeping software has transformed how businesses track, record, analyze, and understand their financial health. By automating tedious manual processes, reducing human error, and providing instantaneous financial reporting, these digital platforms give entrepreneurs the tools to make more informed decisions.
These financial tools are increasingly popular, with the global accounting software market projected to grow from $14.67 billion USD in 2023 to $30.52 billion USD in 2033. Below, we’ll explain what bookkeeping software is and how it can help with businesses’ taxes and payroll.
What’s in this article?
- What is bookkeeping software and why do businesses need it?
- What are the key features of bookkeeping software?
- How does bookkeeping software simplify tax preparation?
- How does bookkeeping software integrate with invoicing and payroll systems?
- How can Stripe help with bookkeeping?
What is bookkeeping software and why do businesses need it?
Bookkeeping software helps businesses track, record, and manage their financial transactions. They use this software for several financial purposes, including:
Transaction recording: This software can create a comprehensive, chronological record of a company’s financial journey. It logs transactions automatically, reducing the likelihood of human error associated with manual entry.
Financial reporting: Bookkeeping software transforms raw transaction data into meaningful financial reports. These reports—such as income statements, balance sheets, and cash flow statements—clarify the company’s financial health for business owners and managers.
Compliance and tax preparation: The software’s functionality can help businesses stay compliant by organizing financial data to track expenses, categorize income, and generate reports for easier tax preparation.
Bookkeeping software provides businesses with a comprehensive system that can accurately track transactions, ensure compliance, and gain real-time insight into their financial health in an efficient way.
By automating routine accounting tasks, this software can help business owners make informed decisions, manage costs effectively, and focus on growth rather than manual recordkeeping.
What are the key features of bookkeeping software?
Bookkeeping software is designed to help businesses manage their financial records easily and accurately. It automatically logs and categorizes income and expenses, and it can generate financial reports. The software typically includes these key features:
General ledger management: This tracks all financial transactions and maintains a company’s financial record. The general ledger helps summarize and categorize all business transactions.
Accounts payable: The software allows businesses to manage and track money owed to suppliers and vendors, including bill entry, scheduled payments, and any outstanding balances.
Accounts receivable: This capability enables businesses to keep track of money that customers owe them. It can create invoices, track payments, and manage overdue balances.
Bank reconciliation: This involves matching bank statements with the company’s financial records so that its books align with bank balances.
Beyond these core functionalities, multicurrency and multilocation support are often also available for businesses with international operations. This feature allows businesses to manage transactions in different currencies or across various locations. An audit trail is important here, as it provides a history of all financial transactions to support internal audits and ensure data integrity.
How does bookkeeping software simplify tax preparation?
Bookkeeping software automatically tracks taxable expenses, categorizes transactions, and maintains organized financial records. It records deductible expenses throughout the year, calculates potential tax liabilities, ensures proper documentation, and creates reports to meet tax requirements.
The software can also help mitigate human error by reducing manual data entry, and it can provide ready-to-use financial summaries that make the tax preparation process faster, more accurate, and less stressful for accountants.
Here’s a closer look at the key ways bookkeeping software can simplify taxes.
Continuous expense tracking: Bookkeeping software thoroughly records and categorizes every financial transaction throughout the year. It tags each expense with its potential tax impact automatically, whether it’s an office supply purchase, a business travel expense, or an investment in equipment. This ongoing documentation simplifies the process of finding receipts or remembering expenses when tax season arrives.
Automatic categorization and classification: Tax authorities require expenses to be categorized precisely. Bookkeeping software automatically classifies expenses into tax-deductible categories such as office expenses, professional services, travel, and marketing. This automated sorting reduces the manual, error-prone process of retrospectively sorting through a year’s financial transactions.
Real-time tax liability calculation: Modern bookkeeping software provides real-time estimates of your tax liability based on income and expenses to avoid surprises.
Comprehensive reporting: Bookkeeping software generates comprehensive reports that clarify the organization’s health for business owners. These aren’t just simple spreadsheets; they’re professionally formatted documents that present financial information clearly and compliantly. The software can create income statements, expense reports, and summary documents in a few clicks—reducing the time and effort required for tax preparation.
Audit protection: Manual tax preparation is fraught with potential mistakes (e.g., missed deductions, incorrect calculations, overlooked expenses). Bookkeeping software can reduce these risks through automation and built-in validation checks. Many systems flag potential concerns or unusual transactions that might attract unwanted attention during an audit, helping businesses investigate and maintain clean, defensible records.
How does bookkeeping software integrate with invoicing and payroll systems?
Bookkeeping software automates key processes so data can flow easily between invoicing and payroll systems.
Invoicing: Within the invoicing system, users can create and send invoices, track payments, calculate sales tax, and manage overdue invoices—all while the bookkeeping software automatically records transactions in the general ledger.
Payroll: The software can also integrate with your payroll system. It can accurately calculate wages, deduct taxes, and record expenses in the general ledger. It also facilitates compliance by generating reports and handling direct deposits while syncing employee compensation data. These capabilities can reduce manual data entry, improve accuracy, and save time.
Using these tools, startups can operate with the financial sophistication of much larger organizations. And for large corporations, these tools can help them manage increasingly complex financial circumstances with improved efficiency.
How can Stripe help with bookkeeping?
Stripe is a financial technology platform that can enhance business bookkeeping processes by providing comprehensive payment processing and financial management tools.
It provides businesses with their transaction data in real time. When a customer makes a purchase, Stripe automatically records every financial detail, including the transaction amount, date, customer information, payment method, and more. This automatic documentation reduces manual data entry and creates an instantaneous, accurate financial record.
Stripe can also easily integrate with accounting and bookkeeping software, allowing transaction data to flow directly into other financial systems. As more companies adopt digital solutions to simplify their financial management, Stripe can further refine the efficiency and accuracy of their bookkeeping—making it easier to stay compliant, track performance, and make informed decisions.
Here are more details on how Stripe can help with bookkeeping.
Automated transaction tracking: With Stripe, businesses can automatically log every payment with comprehensive details, creating a precise digital trail of all financial exchanges. This automation removes the tedious process of manually recording each transaction and can reduce the risk of error.
Detailed financial reporting: Stripe generates sophisticated reports that break down revenue streams, transaction types, payment methods, and financial performance. Businesses can instantly download or export these reports to bookkeeping software to receive insight into their financial operations.
Multicurrency and international transactions: Stripe helps global companies handle complex financial scenarios such as international transactions, currency conversions, and cross-border payments. In balance reports, Stripe records each transaction in the business’s settlement currency, simplifying international bookkeeping.
Reconciliation: With Stripe, businesses can access tools that facilitate bank reconciliation. Stripe offers detailed reconciliation reports that match Stripe payments with bank deposits (a feature currently available to US companies). These reports can help businesses quickly resolve any discrepancies in their records.
Tax and compliance: Stripe helps manage tax-related documentation by automatically calculating and tracking sales tax, generating financial documents, and providing compliance support across jurisdictions.
Automate accrual accounting: Stripe provides businesses that use accrual accounting with automated and configurable reports to simplify compliance.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.