Accrual accounting with document management software is one of the best methods all but the smallest accounting departments and small operations teams, which still tend to rely on cash accounting principles. Although cash accounting doesn’t negate the need for document management software, the accrual system more heavily demands document management technology.
Under the accrual based accounting method, all income and revenues are reported on the income statement at the time they are earned, providing an accurate depiction of a company’s financial health.
This is otherwise sometimes referred to as a matching principle, which captures the entirety of transaction events in terms of money earned to total expenses.
The counterpart to accrual accounting is cash accounting—a method of documenting financial activity only when there is an immediate exchange of cash.
For instance, if you buy a document management system for your accounting department, the accrual method will only register the money made from the transaction of the system sold when the department actually owns the system, which cannot happen until the credit used to buy the solution has been paid off by the organization or buyer.
In other words, our entire economy is structured on accrual accounting and credit. Keep reading to learn how accrual accounting with document management software can ease the financial burdens of any accounting department.
Why Accrual Accounting with Document Management Software Matters in this Conversation
Accrual accounting with document management software is a drastically underutilized tool for organizations neck deep in the launch and growth phases of business.
In tandem with the accrual method of accounting, document management software is a hidden gem that reduces operating expenses without sacrificing productivity, scalability, and, ultimately, return on investment.
It reaches these ends by accounting for hidden costs that, although significant for most businesses, cannot easily be identified on the balance sheet.
Although accountants and CPAs have been trained to (and have an uncanny ability for) identifying and reporting all the costs incurred by an organization, there will always be expenses that the IRS and other regulating authorities do not expect businesses to report, but will nonetheless run rampant through an organization if left unchecked.
Here are a few of the ways accrual accounting with document management software can simplify the process of cutting hidden costs.
Resolving Opportunity Costs
Every accountant understands the concept of opportunity cost. What is sometimes harder to figure out is how it applies in the organizational context.
Cloud-based document management is an ample accounting control that protects against opportunity cost. For instance, the time one spends at the printer or fax machine results in an opportunity cost, as it could instead be replaced with use of a secure web portal that takes less time to use and is less susceptible to data breach, which also simplifies compliance.
Furthermore, many paper-based accounting departments struggle to produce equivalent value to the company that they are being paid for in the form of paychecks, because paper-dependent processes waste time.
Why spend a minute looking for a paper-based file in a file cabinet when you can find it in seconds with the intelligent search features found in most document management software?
If relying on the accrual accounting method, accounting departments and CPAs alike are in a better position to keep their company financially solvent provided they take advantage of the opportunity costs that document management software eliminates.
Using Cloud-based Document Management to Become Accessible
Accountants typically enjoy the use of on-premises technology, as it’s familiar to them. However, accountants are adopting the mentality that their cruising altitude is in the cloud.
Accrual methods with document management software are simplified because the cost of business is reduced through DMS, and client retention efforts can be improved via the cloud.
For instance, a mobile application of document management software enables accountants to securely put their offices in their pockets, giving them accessibility to information and therefore the resources their clients demand.