By Chickie Maxwell

For any business of any size, accounting is critical to know where assets are, how money is being spent, and to be able to explain the business activity for tax reporting and planning. Even a small business needs to have a good accounting process in place for many of the same reasons.

Small business accounting is unique in the fact that the owner or partner of a business is typically involved at a personal level in managing the details. Many small and micro businesses dont have the luxury to employ a dedicated accountant or bookkeeper to manage the dollar numbers. Further, many small businesses dont trust outsiders to manage their numbers either. With too many stories of part-time employees embezzling cash due to the immense power of having a business checkbook, small business owners are rightfully paranoid.

Given the number of aspects a small business accounting task involves, one would think the process is extremely hard and accounting degree is necessary. Fortunately, with todays off-the-shelf software packages, small business accounting is actually as easy as managing a personal checkbook. Todays package offerings such as Intuits Quickbooks, for example, make the process simple from the beginning. All the user needs to know is four things:

1.

Enter every transaction daily or as close to daily as possible since this cuts down the work and keeps the information current.

2.

Make sure to code each transaction with the appropriate cost or income category.

3.

Reconcile the various accounts with the real accounts they represent as often as possible.

4.

Dont fudge the numbers entered.

Following these basic rules, the information that can be generated from such software programs is immensely powerful as it is simple to use.

For taxes the software can generate tax reports that track every revenue, expense, and potentially deductible charge that occurs in a given tax year. The program simple takes all the income or cost categories and places the data in the report accordingly. It also crunches the math as well for the totals which then transfer to tax forms. The only way the information is incorrect is if the user entered the data incorrectly in the first place.

For business management, software packages use the same processes for taxes to generate additional reports small business accounting cash flow, income and expense statements, and dissection reports on which vendors or cost drivers pull the most money. Depending what particular information is desired, theres probably a report that can be generated at a basic level to data mine the entered cost figures. Such reports give a small business immediate status checks on whats going on with the operation. However, the information is only as good as the data entered, which is why its so important to keep the data fresh and up-to-date.

Business owners need to keep in mind using software to track small business accounting makes such systems official records of the business. As such, they have to be preserved in case the business is reviewed, for example in a tax audit. Additionally, the data in the software needs to match the figures in actual receipts, checks, statements, and balances. If the data is different, then the software tool become useless and it can create problems later on if questions arise. Reconciliation is critical for small business accounting to be useful and correct.

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