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SMALL
BUSINESS
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.
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