Modern accounting is the transformation of traditional accounting systems and methodologies through the application of technology and software that automates processes and dramatically reduces the need for human execution of repetitive tasks.
Traditional accounting has been practiced for thousands of years. The process has evolved over time; however, basic concepts such as the double entry system have endured for centuries.
Modern accounting does not change the underlying principles or concepts of accounting. However, it does transform the method of capturing, processing, and verifying accounting information. It utilizes advanced digital capabilities and integrated software programming to achieve maximum efficiency and accuracy.
Modern accounting relies on a number of advanced technological capabilities to transform traditional accounting functions into a digitally integrated system.
Artificial Intelligence: this technology (also referred to as AI) can execute such accounting tasks as entering and matching data from receipts and invoices to purchase entries in accounts receivable, and enforcing company policies in the expense reimbursement process. AI is distinct from robotic process automation (RPA) in that the software “learns” and develops its own logic from the data that it processes. This helps improve the process over time by increasing efficiency and accuracy.
Cloud Computing: modern accounting utilizes cloud computing in which information is stored in a centralized database that can be accessed over the Internet (the cloud) from anywhere. With cloud computing, accounting information is not stored primarily on one or more employees’ desktop computers. Instead, it is stored in a centralized place that everyone can access. This allows for more seamless integration of different applications and data sources, and it helps integrate the work of your team. All of this reduces the amount of time that it takes to access and process information.
Data Entry: traditional accounting systems involve data entry, which is the input of information into a centralized source. Historically, accounting information was entered into paper ledgers. Even with the advent of computers and digital spreadsheets, accounting information still needs to be entered manually. Accounting staff must enter information from various documents they receive that record the financial activity of the company, such as receipts, invoices, bills payable, and expense reports. Modern accounting can eliminate the need for manual entry of this information through digital applications which capture the data from these different source materials and inputting it into a central information source.
Machine Learning: a prominent feature of modern accounting is machine learning, which is the process by which computers are programmed to learn much like humans. They do this by processing data and rules, otherwise known as algorithms. Machine learning allows program to improve and increase the efficiency of their processes by predicting and making decisions.
Real-Time Integration: modern accounting is also able to dramatically speed up the time it takes to enter and process information. This is referred to as real-time integration because software programs that are working together can process and apply information almost instantaneously. In traditional accounting systems, human must first gather and enter information. Then they extract the data and apply it to other programs or execute calculations manually. Accounting automation eliminates the need for humans to conduct these steps, dramatically reducing processing time and improving accuracy.
Robotic Process Automation: robotic process automation (RPA) is a form of automation in modern accounting that performs repetitive assignments, including sorting, data insertion, form completion, and interpretation of text and data. Unlike AI, RPA does not learn or develop logic. Instead, it relies on structured data and rules, but it can greatly reduce processing time and free up staff for other work by performing these time-consuming, repetitive tasks.
Two features of modern accounting are continuous accounting and the virtual close.
Continuous accounting is the modern phenomenon of applying digital technology to track and reconcile every aspect of the business’s financial activity in such a way that all manner of accounting takes place on an ongoing, virtual basis.
The timing of accounting processes more closely tracks the day-to-day activities of the business, rather than traditional fixed schedules. All transactions are captured and journaled accurately and in real-time. Reconciliations take place continuously and automatically, and reports and statements can be produced on demand.
The virtual close refers to a fully automated and completely integrated digital accounting system that enables a business to produce accurate financial statements at any time. By adopting a virtual close, a business has fully embraced accounting automation. It has integrated a complete digital approach. All internal processes are operating on the same accounting platform, using the same data entry parameters, and following the same reporting protocols. In other words, all aspects of the overall accounting system for the business are speaking to each other, in the same language and at the same time. This gives the business the ability to monitor all aspects of its accounting and finances in real-time and to effectively close the books at any time.
Migrating to software helps business owners streamline and improve the accounting process by applying a digital application to many of the functions normally assigned to a person or team of people. Computers can perform manual tasks in a fraction of the time it takes for humans to do the same, so digitizing routine, repetitive, time-consuming, and tedious tasks dramatically speeds up the overall process.
Modern accounting improves the business operation. Real-time execution can increase cash flow by streamlining the cash application and reconciliation processes. It frees up staff to perform higher-level functions, such as analysis and strategic evaluation. It allows management to make informed decisions more nimbly. All of this makes the business more competitive.