Small Business Accounting Software

Your business, no matter how small, needs an effective accounting management system to sustain its day-to-day viability and establish its long-term financial goals. But when you are already multitasking as the CEO, the manager, and the salesman, you don’t really have time to be an accountant too, do you? Yes, actually, you do.

With a good small business accounting software program available in accountantmelbourneco.com.au, you can still manage your cash flow hands on, without spending too much time. A few clicks here and there, and you can forecast revenues, pay bills, and generate reports. But what functionalities should you look for in accounting software? What do you really need and what can you do without? Read on for some tips.

Look for user-friendly software. Choose accounting software with an interface that resembles its traditional paper counterparts so that you can immediately navigate your way around it. The more familiar the layout of the software is to you, the easier you can intuitively explore its functionalities.

 

Pros And Cons of Bookkeeping

Bookkeeping is the act of recording and maintaining financial transactions of a business. There are two main ways of maintaining books of accounts: manual and automated. The manual way is ideal for small businesses that don’t have large data.

On the other hand, automated method is ideal for large corporations that have large data to compute and can’t be able to compute it manually. Whether bookkeeping is done manually or it’s automated, it has the following advantages and disadvantages.

Advantages

Data

When you maintain books of accounts for some time, you are bound to have data that will help you in making informed decisions. From the data, you will be able to tell if your business is progressing, stagnant or retrogressing.

Depending on the direction that your business is taking, you will be able to know when to hire or fire. In addition to this, the financial data that you obtain will enable you to access loans from finance lending institutions. Using the data, you will convince the credit institutions that you deserve to be given a loan. It’s even easier to get a large loan if your data is reflecting an upward trend of your business.

It’s a legal obligation

No company is allowed to operate under the table; therefore, when you keep books of your business, you not only get crucial data, but you also meet your legal obligation. Worldwide, companies are required to track and document their income and expenditures. This is meant to ensure that businesses pay the right amount of taxes. If you don’t keep records of your business, you stand to face government penalties which can amount to closure of your business.

Transparency

When you have books of accounts, you create transparency especially if you run a partnership business. Any business partner can access the books and see how the business is faring. In addition, the books of accounts make it easier for potential investors to see how your business is doing.

Disadvantages

Just like everything else in life, bookkeeping has its fare share of shortcomings.

Time consuming

Whether automated or manual, bookkeeping requires plenty of time before all transactions are finalized. This is because time is required to research ledger discrepancies, collect financial records and track errors.

Costly

It’s no doubt bookkeeping is costly-especially in a small business. If you can’t maintain the books of accounts by yourself, you need to hire an accountant who will balance all the financial transactions for you. While there are many accountants who can do this, a good accountant doesn’t come cheap.

These are the main advantages and disadvantages of bookkeeping. Do the disadvantages outweigh the advantages?

The 3 Critical Financial Statements

There are three vital statements for understanding the condition of a business or entity: (1) the Profit and Loss Statement, (2) the Balance Sheet and (3) the Sources and Uses Statement. Each of them provides a different perspective of how an entity is operating. Combined, they show examiners the health of the business. Each statement reflects a different perspective on the business’ financial operations.

The first statement, the Profit and Loss, can also be called the Income Statement. It documents the amount of money coming into the entity (the income) and the money going out of the entity (the expenses). The difference between what comes in and what goes out is the Net Income, if there is more money coming in than going out. If not, there is a Net Loss. The statement covers a specific period, which is shown in the heading of the statement. Note that it tells us nothing about what has happened for any date that is not included by the statement dates. Think of it as a snapshot for the specific time period. Some common snapshot periods are monthly, quarterly and yearly ones.

The second statement, the Balance Sheet, covers the condition of the business from the time it began until the ending date on the statement. The Balance Sheet reveals three important business characteristics: (1) it summarizes the assets owned by the entity (e.g., buildings, bank accounts, inventory, etc.); (2) the entity liabilities (e.g., loans, outstanding bills, etc.); and (3) the business owners’ equity. The statement is arranged in what is called the ‘accounting equation’, which indicates total Assets will equal the sum of Liabilities and Equity. Balance Sheets are commonly issued at the same frequency as the Profit and Loss and usually reflect the business on the last day of the Profit and Loss period.

Finally, the Sources and Uses Statement reveals how the business received and used funds during the statement period. It shows how much money was provided by business operations and how much was provided by loans or capital received by the entity. The statement also summarizes how the funds were used by the entity. It demonstrates if the company is healthy, headed for trouble, or just bouncing along. Like the Profit and Loss, this statement covers only the period shown in the statement heading. It says nothing about any period not included in the statement. Again, the statement usually covers the same period as the Profit and Loss.

Taking these three statements together, there is a present picture of the business. From the Profit and Loss, comes how well it did during the period, a short-term perspective. From the Balance Sheet it is seen how the entity is accumulating assets or liabilities, from a long-term perspective. Finally, the Sources and Uses statement demonstrates where and how efficiently the entity resources were used during the period. All three perspectives are important to the entity overview.