Data extraction is a useful service in the modern world of today. It cuts across several industries and has a lot of purposes. Be it market research, sourcing financial statements, health records, etc., you need data extraction to make it possible.
Data extraction goes beyond just fetching information; it also involves information analysis. You’ll see how data extraction applies to accounting as you read on.
What does Data Extraction Mean?
Data extraction is a process that entails fetching data from multiple locations and processing or analyzing the same data. Data extraction can be used to fetch all kinds of information, depending on what you’re looking for.
For recruitment firms, such data can be an employee’s background information. It can be internal business data or key performance metrics for corporate bodies. Accounting firms use tools such as Affinda to extract invoices and receipts.
Accounting Data Extraction
Data extraction is relevant to account in so many ways. It’s essential for maintaining internal operations, which the organization carries out daily. Data extraction is needed for account receivables, management of accrued expenses, and account payables.
The following highlights the importance of the data extraction process in accounting:
a) Discovering and Managing High-Risk Areas
Organizations can use data extraction to identify internal and external risks. Risk identification and management is a good accounting practice. Once these high-risk areas have been identified, the information will be analyzed through Predictive Analytics to develop risk management methods.
b) Tracking and Improving Organisational Performance
Regular evaluation of a company’s performance is one way to stay relevant and profitable. It also helps you compete favorably against rival firms. Data extraction is key to strategic decision-making, which helps the organization function smoothly. It also helps the organization achieve its week, month, quarter, and year goals.
By using data analytics to monitor its performance, an organization can easily pinpoint its areas of strengths and weaknesses. As they improve on these weak areas, this can contribute to their viability long-term.
c) Improving Profit Margins
Data extraction and analysis can be used to understand how your customers behave. Knowing their behavioral patterns can help the organization develop analytical models.
These models are used to pinpoint viable investment opportunities, resulting in a higher profit margin for the company. Accounting data extraction also improves the cash flow of an organization.
Common Challenges in Accounting Data Extraction
As essential as data extraction is to accounting, it isn’t without its challenges. Some common challenges include:
1) No Support
Organizational support is crucial for accounting data extraction and analysis. This means that every employee has a role to play in the data extraction process.
It will be very hard to fetch information when there’s no data submission for analysis. Teamwork and team coordination within the organization are crucial for successful data extraction.
2) Wrong Data
As long as data entry is manual, there will be errors in your data. Inaccuracy in data gathered can result in some significant drawbacks for the organization.
This is because data entry plays a role in the company’s decisions. The company has to acquire a central system capable of carrying out validation exercises to eliminate issues with data accuracy.
Conducting thorough data analysis on information gathered takes a considerable level of expertise. Many companies lack seasoned analysts, so they struggle with data analysis.
For companies to ensure that their employees can handle data analysis, they should make “Analytical Ability” a must-have skill during the recruitment process.
Accounting Data Extraction & Analytics Tools
Accountants use the following software to carry out data analytics:
1) Proprietary Tools
This is regarded as the sole property of an organization. The owners invented and utilized them to create products or services, which they sell to consumers for profit realization.
An example of proprietary tools includes IDEA (Interactive Data Extraction and Analysis). Large companies commonly use it.
2) Business Intelligence Tools
Have you heard of Power BI or Tableau? These are popular business intelligence tools. They help accountants to glean practical business insights from a dataset. They use these tools to process the information, model it, and provide user-friendly illustrations.
Through these illustrations, accountants get deep business insights that can help them pinpoint and work on areas they should improve upon. Business intelligence tools are also great as collaborative tools because of their easy-to-share features.
This is a popular spreadsheet software, and it’s compatible with all the relevant operating systems (iOS, macOS, Windows, and Android).
It offers numerous features, notably Graphing Tools, Calculations, Pivot Tables, etc. It’s unarguably one of the very best data analysis tools in the market because it’s compatible with several plug-ins, which improve user experience and the application’s efficiency.
4) R and Python
Several firms utilize these computer languages to execute highly sophisticated analyses of statistics. Organizations can also use R and Python to develop algorithms that execute tasks such as identifying information clusters and Regression Analysis.
Companies who wish to digitize documentation to save on paperwork can check out Draftable.
Accounting for small businesses can be done more efficiently with data extraction. Though it comes with some challenges, its benefits far outweigh them.
The challenges per se are minor if your organization has a team of seasoned accountants. Your organization can benefit from a healthy cash flow by properly utilizing the tools mentioned above.
Author’s BIO: Lori Wade is a journalist and content writer from Louisville. Lori creates news and informative articles about HR, recruiting, and employee productivity. She is also an active user of Affinda’s Invoice Extractor, which helps her a lot in her work. Hope you appreciate Lori’s useful insights!
By Nataliya Vaitkevich on pexels