Artificial intelligence and the future of accountancy

Artificial intelligence and the future of accountancy

Artificial intelligence and the future of accountancy
Do you want to streamline your invoice management process? Do you wish to expedite your account closing procedure? Are you looking for an efficient system for expense management? Do you intend to make your audit process more accurate, efficient, and secured? If you answered ‘Yes’ to any of those questions, we have the answer for you – Artificial Intelligence (AI).

Similar to other industries, artificial intelligence is making its impact in the accounting world as well, specifically making it more competitive. Although accounting is a traditional industry, accounting has been automated. AI’s impact on accounting adds new vigour to it by transforming the repetitive, standardized tasks to the generation of insights that can drive strategic decisions for businesses.

Artificial intelligence is defined as the simulation of human intelligence in machines so that they think like humans and imitate their actions. Machines or bots learn to read data, interpret the information, tune it for better analysis, and perform the required tasks.

It combines other technologies and innovative concepts such as computer vision, deep learning, natural language processing, machine learning, and reasoning to improve the strategic importance of the accounting function.

Artificial intelligence for the future of accountancy

AI and accounting walk hand in hand. What started with the automation of basic accounting tasks has shifted gears to more intelligent, results-driven, strategic insights. The three primary ways in which we see the use of artificial intelligence in accounting and finance are:

Efficiency in repetitive tasks

AI has the strength to collect and collate data from various sources in any format – structure or unstructured. Artificial intelligence in accounting information systems allows accountants to sort and visualize the data in multiple formats.

AI-based invoice management systems automate the invoice processing to eliminate errors, improve the recording of invoices, increase the number of invoices recorded, and manage relationships with suppliers. AI-based auditing process removes the requirement for auditors to go through the entire process of creating tests, writing scripts, and applying all rules.

Furthermore, artificial intelligence enables the execution of repetitive and standardized tasks earlier performed by accountants, thereby providing them more time to focus on understanding the data generated.

Reduction in frauds and errors

With the rise in online activities, there is a surge in online payments, online banking, and other online financial transactions.

However, in such transactions, the chances of financial crime such as fraud also surge higher. This is where the role of artificial intelligence in accounting and auditing becomes pertinent.

AI enables the correct matching of expenses with the appropriate categories so that expense management is possible without any errors. AI also facilitates the detection of errors such as duplicate entries, incomplete invoicing leading to fraud situations, or some objectionable payments.

These benefits of AI enable accountants to make the right payments and remain compliant with statutory requirements, thereby achieving full compliance and protecting the client’s finances from any frauds.

Drawing insights for better decision-making

We know that AI can detect anomalies in data and can analyze data efficiently and effectively. These data may refer to the invoices from suppliers, sales made to customers, demographics of customers, or any other data.

Such clean, analysed data can lead to better insights for the decision-makers who can base their next strategies on these insightful data. With the use of artificial intelligence in accounting, accountants can do budgeting, cash flow forecasting and financial planning to ensure they do not face any uncertain losses.

Decision-makers can use such actionable insights generated from AI-based accounting to adjust their expenses or make changes to the processes to reduce business expenditure and thus deal with financial challenges more efficiently.

The hey can leverage the use of AI in accounting and finance to understand the right time of targeting customers with marketing efforts to generate sales and understand customer behavior for future advertising strategies.

Impact of artificial intelligence on the accounting profession

With all these benefits and many more benefits being explored in the future, many people will safely assume that artificial intelligence will replace accountants. No, that is not and will never be the case. It requires the right combination and collaboration of the human mind and advanced technology to make the most of the benefits to businesses.

The impact of artificial intelligence on accounting will keep on increasing, but human intelligence will have its role to play in this setup. AI technology will replace the repetitive tasks of humans and make financial transactions error-free and faster, but human intelligence is required to run this technology.

Accountants’ insights-generating competency is essential to assess the large amounts of error-free, clean data that can help businesses in key decisions.

Therefore, AI will not replace accountants; AI will assist accountants in the conduct of accounting services with more efficiency, effectiveness, and more value. However, accountants have to develop more skills to make the right use of AI in finance and accounting to generate benefits for businesses and the economy as a whole.

AI will collect data from multiple sources and perform calculations, but accountants will be required to analyze the information and draw conclusions. Accountants must have the following skills:
Ensure a big jump to your business growth with AI-based accounting processes

KMS accounting services

KMS accounting services include basic bookkeeping services, cash flow forecasting services, business valuation and restructuring, account reconciliation services, and updating of backlog accounts.

Our team boasts of expert accountants with extensive experience in varied industries who not only provide accounting services, but also make it easier for organizations to take strategic decisions.

Our accounting services facilitate smart budget preparation, proper accounting record-keeping, tracking of malpractices, and effective decision-making.

Khandhar Mehta & Shah

Khandhar Mehta & Shah is an accounting firm based in Ahmedabad, India. We provide a myriad of services including accounting, GST consulting, outsourcing, company formation, audit and and assurance, and advisory.

Our strengths lie in using our rich experience to improve your productivity, giving you access to a specialized skilled and proficient team, delivering through the latest technologies, and generating

frequently asked questions(faqs)

No, AI will transform the accounting industry, but accountants are very much needed.
Yes, AI can make most of the accounting tasks faster, error-free, and timely.
The educational requirements may not reduce, but may add up with additional courses in developing skills such as data analytics, business modelling, statistics, and others.

Khandhar Mehta & Shah – Generating value for your business

Bookkeeping Basics for Small Businesses

Bookkeeping Basics for Small Businesses

Introduction to Bookkeeping

Small business owners have many lessons to learn in the initial phase of the development of their operations. Nevertheless, that does not mar the excitement of signing the first deal or having the first customer and the enthusiasm of the first profits. They start small; their finances are small, the operations are on a smaller scale; however, multiple tests and trials have to be dealt with on a daily basis, similar to any large business enterprise. One of the key challenges that businesses generally ignore is bookkeeping, which is essential for efficient financial management.

Small business owners make big business plans for the key processes of sales, marketing, strategy, and customer relationships. However, when it comes to bookkeeping, their focus reduces, and hence the business suffers.

Accurate bookkeeping is a vital activity for the smooth running of healthy business operations. However, the foremost thing that small business owners must do is to understand bookkeeping, identify the key rules of bookkeeping, and comprehend the small errors or pitfalls in the recording of transactions that can become a threat to business growth in the future.

Therefore, small business owners must make efforts to learn the basics of bookkeeping to understand where the business stands through the cash on hand, debts owed, and the other financial ins and outs. Furthermore, this ensures to prevent any fraud situations from any customers, employees, or vendors.

We provide the small business owners with the following basics of bookkeeping so that they can understand the finances better for ensuring the long-term success and sustainability of their ventures.

Defining bookkeeping

Bookkeeping is the process of recording and organizing a business’s financial transactions, which is a part of the accounting process. The key transactions of bookkeeping include sales, purchases, receipts, and payments. The supporting documentation for each financial transaction, such as a purchase order, receipt, or invoice, is also recorded as evidence of the transaction. It helps the businesses to understand the main causes of expenses and the key sources of revenues. Bookkeeping is different from accounting since accounting includes recording, summarizing, analyzing, and consulting of finances of business while bookkeeping is just collecting of data, and hence, is only a subset of accounting.

Basic types of accounts

Bookkeeping requires business owners to record each transaction in the relevant, appropriate category for better understanding and management of the financial transactions. Small business owners must maintain these 10 basic types of accounts for an efficient bookkeeping process:

Cash

Any business transaction passes through the Cash Account since the owner either pays cash or receives cash for a transaction. Bookkeepers can maintain two journals for Cash Account – one for Cash Receipts and one for Cash Disbursements.

Owners’ Equity

An account recording the amount a single owner or multiple owners put into the business is called an Owners’ Equity Account. Liabilities subtracted from assets result in Owners’ Equity, also called net assets.

Sales

Whatever transaction related to sales of products or services is conducted is recorded in this account. It is the incoming revenue, which must be tracked carefully to know the total income generated from the sales.

Accounts Receivable

When a business owner sells products or services to a customer on credit, that transaction is recorded in Accounts Receivable since the money from customers is due. This account sees changes whenever the payment of a past transaction happens.

Purchases

The transactions involving the purchase of raw materials or finished goods from suppliers to be used for business purposes are recorded in this account.

Accounts Payable

When the business owner purchases something from its vendors and does not make the payment at that time, then that transaction is recorded in Accounts Payable since they owe money to suppliers. This account must be maintained well to avoid double payments and ensure timely payments.

Loans Payable

If a business owner borrows money for buying equipment, furniture, or any business-used thing and the payment is due, then that transaction is recorded under Loans Payable along with the due date of payment.

Retained Earnings

The net income of business after deducting all the dividends declared by the entity is recorded under Retained Earnings Account. Investors and lenders track this account to understand the business’s performance from the start.

Inventory

The Inventory Account tracks all the transactions wherein the product or service is ready for selling, but the sales have not happened. It requires close monitoring since it is a current asset.

Payroll Expenses

Money used to pay the employees is recorded in Payroll Expenses Account. Maintaining this account well is essential since it is used for complying with tax requirements.

Bookkeeping and key decisions

Once small business owners understand the importance of bookkeeping and the significant basic accounts to be maintained, there are few key decisions to be taken to ensure a proficient process of bookkeeping in the entity.

Single-entry vs. double-entry bookkeeping

Besides the types of multiple accounts required to be maintained for a well-organized bookkeeping process, business owners must decide on whether to keep single-entry or double-entry accounts. If the business is extremely small and the number of transactions is less, single-entry bookkeeping works, wherein one entry is made for each transaction.

For example, if there is no requirement to deal with any equipment or inventory and if there are not many cash transactions, business enterprises can move ahead with single-entry bookkeeping. In the case of double-entry bookkeeping, two entries – one debit and one credit transaction are added to two different accounts.

This is required in highly complex organizations with a larger volume of transactions. Double-entry bookkeeping is more challenging than single-entry bookkeeping; however, accuracy and balanced books can be ensured with double entries of each transaction.

In-house or outsourcing

Making journal entries for every transaction and managing the supporting documentation is a tedious and complex task. Without special training in accounting, it is difficult for entity owners to manage it themselves.

However, the decision depends on the owner based on the factors of costing, accuracy, and trust. If the number of transactions remains very few, managing it in-house by hiring an accountant is best, while if the business involves multiple, complex transactions daily, outsourcing to a CA firm is better.

When the businesses are just following a passion or hobby with rare transactions, then the Do it Yourself (DIY) route is manageable. If the business owners and their team are too occupied in operations to ensure growth that they are not able to focus on bookkeeping, then hiring a professional would be the best decision.

Excel or software

Many computer software is available that can help business enterprises with bookkeeping entries and maintaining accounting journals, different from maintaining physical papers and account books that were prevalent in olden times. Business owners, who choose to manage accounts themselves, have the option of either using:

Frequency of recording the transaction

Business owners must make it a habit to maintain daily records. Daily recording enables us to keep track of all the transactions, thereby helping the owners to keep an eye on the financial condition of the business. If not possible to manage it daily, the supporting documentation must be saved so that each transaction is recorded at the end of the week.

Furthermore, business owners must ensure to balance and close the books regularly – monthly or quarterly, depending on the volume of transactions. The balance of credits and debits calculated after every month or quarter must satisfy the equation of Assets equal to the summation of Liabilities and Equity. If not, the errors must be found, checked, corrected, and the final balance must be achieved for the closure of books.

Cash method or accrual method

It is crucial for business owners to decide whether they will use the cash accounting method or the accrual accounting method. In the cash method, the revenues and expenses are recognized at the time of actual receipt or payment of cash for the transaction. This method is easier to maintain, and the business owner is aware of the actual cash in business at any given time.

On the other hand, in the case of the accrual method, the revenues and expenses are recognized when the transaction occurs, even if the cash payment or receipt has not occurred. Herein, the business owner is required to track all the receivables and payables; however, it gives a more realistic and long-term picture of the business.

Benefits of good bookkeeping

If bookkeeping is done regularly and with accuracy, it can result in a multitude of positive consequences as follows:

Easier fixing of problems

Mistakes happen in businesses; under billing a client, overpayment for raw materials, double charge by the bank, improper credit of the deposit, or any other. With good bookkeeping practice, it is easier to notice any such error made in the transactions, and hence, it becomes easier to fix them.

Dealing with taxation on time

Handling taxes for a business is one of the most fundamental tasks. The business is operating means it will have central and state taxes, professional taxes, indirect taxes, and any other annual charges or fees. Payment of these taxes before the deadlines is essential to avoid late payment fees, penalties, or interest amounts. Besides, income tax filing is also a critical task, which should be completed on time with no errors.

Better planning and management of business

Reporting and recording each transaction helps the businesses to obtain a view of the current business situation, which, in turn, can ensure planning and budgeting for the future. If the accurate financial transaction is not collected and reported, it becomes difficult to understand how the business is doing, where it is headed in the future and the related financial planning for the same.

Increased probability of receiving financing

Accurate and timely bookkeeping enables business owners to provide the lenders with business reports on financial statements and income tax returns. This enables the businesses to demonstrate the actual financial scenario of the enterprise to investors for obtaining a business loan. If such critical statements are not available, it becomes difficult to obtain the approval of the lenders or investors.

Therefore, for successful operations of your business ad better financial management, it is advisable for small business owners to engage in a regular, accurate bookkeeping process.