Picking
A Small Business Accounting Program
by: Stephen
L. Nelson, CPA A small business accounting
program should accomplish three tasks: track income
and expenses, generate business forms, and keep
detailed records for other assets and liabilities.
Tracking Income and Expenses
The task of tracking a business's income and
expense is really the most important job of an
accounting system. If you own or manage a small
business, obviously, you need some tool for measuring
your income and your cash flow.
Although checkbook programs like Quicken and
Microsoft Money does little more than keep a checkbook,
you can actually keep financial records for a
business right out of a checkbook. To do this,
you simply categorize deposits as falling into
some income category. And when you write a check
or make some other withdrawal, you categorize
expenses as falling into some expense category.
One problem with using a checkbook program, however,
is that by using a checkbook program, you are
implicitly using cash-basis accounting to track
your income and expenses. Cash-basis accounting
counts income when you receive a deposit and counts
expense when you write a check.
Cash-basis accounting is easy to understand,
and that means you are less likely to make errors
in implementing it. However, cash-basis accounting
is generally too imprecise for more complicated
businesses. If you use inventory in your business,
for example, cash-basis accounting isn't very
accurate-and the Internal Revenue Service does
not allow it.
And there are other circumstances, too, in which
cash-basis accounting produces serious and usually
unacceptable errors in precision. For example,
if you often receive money before you have actually
earned it or if you often incur expenses long
before you actually have to pay for them, you
need to use a more sophisticated accounting program
than a checkbook program.
Generating Business Forms
The second task that a small business accounting
program should help you with is the generation
of business forms. The most common business form
is simply a check. Any checkbook program help
you do this. Other business forms that small businesses
commonly need to produce include invoices, credit
memos, monthly statements, purchase orders, and
so forth.
If you have a small business with very simple
form requirements-perhaps you need only checks-then
a checkbook program may work very well for you.
However, if you have extensive or complicated
business form generation requirements, a more
full-featured small business accounting package,
such as Intuit's QuickBooks, Peachtree's Complete
Accounting, or Microsoft Small Business Accounting
will do a better job for you.
If you produce more complicated forms, but you
produce these other forms with a word processing
program, then a checkbook program may still work
for you.
Detailed Record Keeping for Other Assets and
Liabilities
The third task that a small business accounting
program should help you with is detailed record
keeping of your most important assets and liabilities.
A checkbook program lets you keep good detailed
records of cash, and for some businesses that
is the principal asset. But many small businesses
have other significant assets and liabilities
they need to track, for example, accounts receivables,
inventory, and vendor payables.
Whether or not a particular software program's
accounting tools provide adequate asset and liability
record keeping depends on the situation. However,
no small business accounting program does everything
you need it to do. Any accounting program that
provides an extensive list of features, by its
very nature, becomes a challenge to use. For example,
moving to the accrual basis of accounting adds
an entire layer of complexity to financial record
keeping, and keeping detailed records of inventory
adds another layer.
For these reasons, even when a particular program
doesn't do everything you need it to do, your
best choice still may be to use the program-and
then simply live with its shortcomings. |
