A Basic Guide to Small-Business Accounting

Here are your options when it comes to balancing the books.
July 19, 2012

Small-business owners makes decisions every day that impact the economics of the venture. Having proper accounting procedures in place makes it easy to track the money as it comes and goes and to have an up-to-date view of the company's financial health.

The basics of small-business accounting begin with deciding if the company's books will be managed through cash or accrual accounting.

In cash accounting, the transaction is recorded only when cash is finally exchanged. That means not just when money arrives, but when cash is used to pay expenses.

With accrual accounting, the transaction is recorded when it it actually happens. If a company performs a service in July and bills a client for it, it is recorded in "accounts receivable" in July. The customer may not actually pay the bill until August. The accrual method requires what is known as double-entry bookkeeping because it is recorded when the bill is sent and when the payment is received.

Under the cash system, the transaction would not appear on the books until the customer's payment arrived.

Only the smallest businesses are able to successfully use the cash method. Most companies opt for the more complex accrual method to manage the overall financial picture.

Spreadsheets and Software

Accounting procedures are used to track the cash flow of income and expenses, calculate necessary tax payments, manage payroll and produce financial reports. Accurate bookkeeping requires attention to detail.

Very small companies may be able to manage the books by using a basic spreadsheet like Microsoft Excel. Transactions are entered manually and cells can be easily categorized. Fields can be added to existing spreadsheets, which is often useful when it comes to tracking customer data. Spreadsheets can also be used to generate reports.

As a business grows larger, specialty accounting software should take the place of the spreadsheet. Choices include desktop applications or cloud-based solutions. Some accounting software now include a mobile version. In addition to one-time paid applications and subscription-based services, there are also a few free options. Depending on how much you spend, you can expect to get helpful tools such as check writing and reporting features.

Among the free applications available is GnuCash, a downloadable program that tracks income, expenses, bank accounts and stocks. WaveAccounting is a cloud-based app, which means financial data can be accessed from anywhere with an Internet connection. Wave is supported by some advertising, whereas GnuCash is funded through donations and volunteer developers and testers.

QuickBooks and Sage 50

In the commercial accounting software arena, Intuit's QuickBooks is the dominant player. There are several varieties and, as the price increases, so do the features. QuickBooks can be used on a basic level to track income and expenses, write checks and manage customer histories and inventories. QuickBooks has a one-time cost for the software and an option for managing payroll at an additional charge. There is an advanced version that can be used in multiple locations.

QuickBooks also offers an online version of its software for a monthly fee.

There are QuickBooks courses available to learn how to master its many features and, because it is so popular, many accountants are able to work with the data and even assist clients in learning how to use it.

Sage is another accounting software developer. Its Sage 50 suite of products (formerly known as Peachtree) is recommended for businesses with 1 to 99 employees and under $10 million in revenues. Sage sells several versions of its software with increasing layers of functionality, along with several industry-specific versions.

QuickBooks and Sage 50 allow free trials to give users a chance to experience the interface and get a feel for how the product works.

Hiring a Pro

Small-business owners may turn to an accountant for some of the company's financial matters. Accountants can take the records, either from spreadsheets or from software reports, to create income or financial statements, calculate taxes owed or prepare tax returns at year's end. Some accountants are also qualified to serve as financial consultants to the business owner.

Small-business owners need to have a solid handle on the numbers to thrive. That's why it is so important to have accounting procedures in place and follow them. From basic spreadsheets to cloud-based computing to very sophisticated software, the best system is the one that is easily enabled and has all the features necessary for that particular business.

Carla Turchetti is a veteran print and broadcast journalist who likes to break a topic down and keep her copy tight. That's why this bio is so brief! Carla blogs via Contently.com.

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