How to Use Accounting Software for Time Tracking: A Complete Guide for Modern Businesses

By April Bulahao

Time is one of the most valuable and most expensive resources any business manages. For companies in today’s fast-moving economy, especially service-based businesses, consultants, creative agencies, small manufacturers, and craft spirits importers, understanding where time is spent, how labor contributes to revenue, and how to bill accurately is essential to maintaining profitability.

Accounting software has evolved beyond basic bookkeeping tools to include integrated time-tracking features that simplify payroll, improve cost allocation, and support better financial decisions.

This article explains how accounting software can be used for time tracking, how it improves accuracy and financial oversight, and why it has become an essential part of the modern accounting workflow.

It also covers practical steps for implementing time tracking within your organization, common features to look for, and best practices for ensuring your data remains accurate and actionable.

1. Why Time Tracking Matters in Today’s Accounting Environment

In the past, time tracking was often handled through manual logs, Excel spreadsheets, handwritten notes, or outdated punch-clock systems. These methods were prone to errors, lost entries, inaccurate totals, and inconsistent reporting. In today’s business environment, this no longer works, especially when labor is one of the largest operating costs.

More businesses are turning to accounting software with built-in time-tracking capabilities because:

a. Labor costs must be tied to real financial performance.
Whether a business works with hourly employees, billable consultants, drivers, warehouse teams, or service technicians, labor must be tracked precisely to evaluate profitability. Proper time tracking helps determine:
- Cost per job or project
- Actual cost of goods sold (COGS)
- Margin impact of overtime
- Resource allocation needs
- Accurate job costing and billing

b. Compliance requirements continue to increase.
Federal and state labor laws require employers to keep accurate employee time records, preserve them for set periods, and ensure fairness in pay. Time-tracking features help streamline compliance by creating digital audit-ready logs.

c. Manual systems create administrative waste.
Manual time tracking requires hours of verification, data entry, and reconciliation. Accounting software eliminates these tasks by automating:
- Time calculations
- Overtime rules
- Payroll mapping
- Timesheet approvals
- Integration with accounting and HR systems

d. Customers expect accurate billing.
Professional services, import/export businesses, and logistics providers often bill based on time spent:
- Coordinating shipments
- Securing compliance documentation
- Managing inventory
- Communicating with overseas suppliers
- Delivering final products
Time tracking ensures that billable hours reflect real work and supports transparent customer invoicing.

e. Real-time data supports smarter financial decisions.
Modern accounting is not just about recording history; it is about managing the present and planning the future. Real-time time-tracking data helps leaders understand:
- When to increase staffing levels
- When to reduce overtime
- Which tasks require process improvement
- Which activities generate revenue, and which do not
Time has become a financial metric as critical as cash flow.

2. What Accounting Software Can Do for Time Tracking

Modern accounting platforms such as QuickBooks Online, Xero, FreshBooks, Wave, Zoho Books, and other cloud-based systems now provide time-tracking tools that connect directly to financial workflows. These tools help companies manage both employees and contractors with greater accuracy.
Here are the most common capabilities that make time tracking more powerful when integrated with accounting software:

a. Timesheet creation and entry
Employees can input time through the system using:
- Daily or weekly timesheets
- Mobile apps
- Desktop dashboards
- Tablet kiosks
Some systems even allow automatic time logging based on activity tracking.

b. Job or project tracking
Time can be associated with:
- Client accounts
- Job or project IDs
- Cost centers
- Departments
- Internal initiatives
This provides a clear picture of how resources are distributed.

c. Billable vs. nonbillable hour classification
Billable hours can be pushed directly into:
- Customer invoices
- Service bundles
- Project costing modules
Nonbillable time is tracked separately for productivity analysis.

d. Integrated payroll processing
Completed timesheets automatically synchronize with payroll, eliminating errors caused by manual entry. This improves payroll accuracy and reduces processing time.

e. Real-time financial synchronization
The moment time is logged; it can feed into:
- Cost accounting
- Profit and loss (P&L) reports
- Job costing models
- Labor dashboards
- Budget forecasting
This supports more accurate financial planning.

f. Approvals and review workflows
Supervisors can approve, reject, or request edits before time entries affect financial records.

g. Mobile accessibility for remote and field teams
For distributed workforce drivers, field technicians, warehouse inspectors, and sales reps, mobile time tracking ensures accuracy, even away from the office.

h. Reporting and analytics
Time-tracking reports may include:
- Hours by employee
- Hours by project
- Labor cost per customer
- Productivity comparisons
- Overtime summaries
- Variances vs. budget
These insights help leaders address inefficiencies and control labor expenses.

3. How to Implement Time Tracking Through Accounting Software

Successful adoption requires more than simply enabling a feature in your accounting system. Proper implementation involves planning, communicating expectations, and structuring your data.
Here is a step-by-step guide:

Step 1: Choose the Right Software
Not all accounting software provides robust time-tracking capabilities. Evaluate tools based on:
- Mobile support
- Integration with payroll
- Integration with invoicing
- Ability to assign time to clients or projects
- Customizable approval workflows
- Real-time syncing
- Reporting capabilities
Service-based businesses and importers with multiple ongoing logistical tasks may require more advanced time-tracking modules.

Step 2: Establish Clear Policies
Employees need to understand:
- How often to log time (daily, weekly, or per task)
- When time entries must be submitted
- What qualifies as billable vs. nonbillable
- Expectations for accuracy
- Overtime and break rules
Clear policies prevent disputes and ensure consistency.

Step 3: Configure your accounting software
Within your system, set up:
- User permissions
- Project or job codes
- Customer accounts
- Billable hour rules
- Labor categories
- Pay rates
- Timesheet approval settings
- Overtime rules
A well-structured configuration ensures accurate data from the beginning.

Step 4: Train your team
Provide training on:
- How to enter time
- How to classify hours correctly
- How to use the mobile app
- How to review previous entries
- How to submit timesheets for approval
The goal is simplicity and consistency.

Step 5: Automate where possible
Automation reduces administrative work and prevents errors. Automations may include:
- Recurring timesheet templates
- Automatic reminders for incomplete timesheets
- Automatic payroll synchronizing
- Auto-generated reports
- Scheduled approvals
Automation ensures time data flows smoothly from employees to financial statements.

Step 6: Review and approve regularly
Managers play an essential role in:
- Catching errors
- Verifying billable hours
- Ensuring compliance
- Preventing overtime abuse
Approval workflows maintain accuracy before data hits payroll or invoicing.

Step 7: Analyze results
Businesses should evaluate time-tracking data weekly or monthly to identify:
- Labor inefficiencies
- Overbudget projects
- Unprofitable client accounts
- Staffing shortages
- Productivity trends
This supports strategic decision-making with factual evidence.

4. How Time Tracking Improves the Accuracy of Your Accounting

Time tracking is not only an operational tool; but it also strengthens your entire financial system. Here are key areas where it makes a measurable difference:

a. Financial Statements Become More Accurate
Labor costs are a major component of:
- Cost of goods sold (COGS)
- Operating expenses
- Gross margins
- Net income
When time tracking is automated, these figures become much more accurate.

b. Improves job costing and pricing strategies
Real-time labor data helps businesses adjust:
- Pricing
- Staffing
- Production processes
- Customer service standards
Craft spirit importers, for example, can better determine the labor involved in managing compliance documents, freight coordination, labeling requirements, warehouse logistics, and distributor communication.

c. Supports more accurate customer billing
No more underbilling or overbilling.
Invoices reflect the exact time spent on:
- Back-office work
- Coordination
- Meetings
- Administrative tasks
- Warehouse services
- Quality control
This improves cash flow and strengthens customer trust.

d. Enhances tax compliance
Time tracking helps maintain records required for:
- Payroll taxes
- Overtime rules
- Employee classification
-Deductions for contract labor
- R&D credits (when applicable)
- Accurate records reduce audit risk.

e. Strengthens internal controls
Modern accounting software provides audit trails that track:
- Who entered time
- When it was entered
- What changes were made
- Who approved it
This promotes transparency and prevents manipulation.

f. Eliminates double-entry and manual errors
When time tracking integrates automatically with payroll and invoicing, human error is dramatically reduced.

g. Improves cash-flow forecasting
Knowing how labor hours fluctuate allows the finance team to:
- Predict payroll costs
- Plan for peak periods
- Prepare budgets
- Adjust payment schedules
- Forecast profit margins
Labor becomes a measurable, predictable metric.

5. Best Practices for Getting the Most Out of Time Tracking in Accounting Software

To ensure that time-tracking tools deliver real value, follow these best practices:

1. Require same-day or next-day entries
Waiting until the end of the week leads to inaccuracies.

2. Use clear job or client categories
Overly broad categories make data less useful.

3. Separate billable and nonbillable time
This helps identify waste and improves profitability analysis.

4. Establish manager approval checkpoints
Prevent inaccurate data from flowing into payroll and financial reports.

5. Review labor reports frequently
Weekly dashboards help spot trends before they become problems.

6. Use mobile tools for field and remote employees
This ensures accurate, real-time information.

7. Integrate payroll, invoicing, and reporting
A fully integrated system eliminates redundant work.

8. Track overtime closely
Overtime often erodes profit margins without proper oversight.

9. Provide training refreshers
Employees benefit from periodic reminders, especially when the software updates.

10. Audit time entries quarterly
Spot check for inconsistencies, missing data, or policy issues.

Conclusion
Modern businesses rely on accurate labor data to understand financial performance, improve project profitability, and manage payroll with precision. Accounting software equipped with time-tracking tools eliminates guesswork, reduces administrative burden, enhances compliance, and provides real-time insights that help leaders make smarter decisions.

For companies looking to optimize their financial operations, reduce manual work, and gain deeper visibility into the relationship between labor and profit, working with a financial partner can make all the difference.

Vantage-CFO Financial Services specializes in helping businesses implement efficient accounting systems, automate key financial processes, and interpret their data for better strategic planning. With expert guidance, businesses can unlock the full value of time tracking and build a stronger financial foundation.