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Small Business Accounting Software Equals Simple Bookkeeping Spreadsheets

by diyaccounting

Accounting software is used by accountants to enter many complex
financial transactions into the financial books of account and is
almost invariably based upon double entry bookkeeping principles.
A major advantage to those companies and the finance staff is the
extent to which financial information contained in the database
can be queried for financial control purposes.

An accountant needs to not only ensure the financial records are
accurate but also retrieve any part of the accounting records to
answer accounting questions on the accounts, provide a legal
basis for the transactions and report the financial statements at
regular periodic intervals.

The small business has different accounting needs which are
better described as bookkeeping than accounting. For non limited
companies that do not need to produce a balance sheet then a
simple income and expenditure account can be produced much
simpler using single entry bookkeeping principles.

Less financial control is often required from small business
accounting software as the bookkeeper is often the owner manager
who already has an intimate knowledge of each transaction. Books
are still required for tax purposes and a solid requirement of
preparing a set of financial books for tax purposes is that each
entry is supported by third party evidence.

Examples of third party evidence would be sales invoices,
purchases invoices and bank statements. Financial transactions
where no receipt exists can still be entered in the business
books although all transactions not carrying third party evidence
could subsequently be disallowed for tax purposes and certainly
would be if the amounts entered indicated unusual income or
expenditure.

Producing an income and expenditure statement using single entry
bookkeeping is little more than making two lists of financial
transactions. Those lists being one of sales income received from
sales invoices or receipts issued to customers and the other of
purchase expenditure being from purchase invoices received from
suppliers.

To record sales income it would not normally be sufficient to
simply add up the total of the invoices as such a summation does
not leave an audit trail of the items which have been included. A
written list of sales invoices does provide an audit trail.

Sales accounting for a small business accounting purposes can be
either a manual list of the sales invoices or by using a
spreadsheet package a list can be made on a bookkeeping
spreadsheet. Using a spreadsheet for the bookkeeping has
advantages as simple formula can be used to add up the column
totals.

The essential information to enter for a sales invoice would be
the date of the sale, name of the customer, sales invoice number
if applicable and optional a brief description of the item sold.
In the next column would be the total sales invoice amount. If
items like value added tax are required to be accounted for then
an additional column would be required to accommodate the vat or
sales tax accounting.

A further small complication might be if at the discretion of
the small business owner additional information was required from
the bookkeeping records to indicate the totals of the different
types of products and services then additional columns could be
incorporated to enter the net sales figures in these columns.

There it is then, a simple list of sales invoices to satisfy the
sales accounting requirements for a small business where a
balance sheet is not required.

On the expenditure side of the business the bookkeeping can also
be a simple list of the purchase invoices and receipts showing
the amount spent. The list should also produce an audit trail by
showing the date of the purchase invoice, name of the supplier,
purchase invoice for identification purposes and the total amount
spent.

Usually tax returns are the main purpose of producing small
business accounts and invariably some analysis is required to
show what the expenses have been spent on. That is not difficult
to achieve and as with the sales accounting the owner manager can
add additional standard columns to the bookkeeping spreadsheet.

The expenditure analysis columns do not need to be a different
column for each type of expenditure. It is better to set up and
group the analysis columns in general headings which can
accommodate all the expenses.

Such columns may include stock, other direct costs, premises
costs, general administrative costs, transport and delivery
costs, repairs and maintenance, travelling and hotel costs, motor
costs, bank and legal costs and other expenses. It is better not
to enter too many items under a general heading of other expenses
as this is more likely to be investigated as the type of expense
has not been precisely identified.

One important column to also include is for asset purchases as
fixed assets usually have different tax rules applying to the
claim of the expense against tax and should be separated from
other expenditure.

Having set up two bookkeeping spreadsheets the task is then to
produce the income and expenditure account by collecting the
totals of each of the analysis columns. The sales total is the
sales turnover from which is deducted the totals of each of the
expenditure classification totals with the result being the net
profit and loss of the business.

Where stock is bought and sold a further adjustment may be
required to account for the difference between opening and
closing stock. This is done by taking a physical stock check and
valuing the stock at the start and end of the financial period.

On the income and expenditure account adjust the stock purchases
figure by adding the value of the opening stock and deducting the
value of the closing stock. The result is not the stock purchases
total as shown in the bookkeeping spreadsheets but the cost of
the goods which have been sold to produce the sales turnover
being reported.

Simple bookkeeping for a small business accounting purposes can
be two lists of sales and purchases supported with sales invoices
and purchases invoices.

Terry Cartwright a qualified accountant at DIY Accounting in the
UK designs <a href="http://www.diyaccounting.co.uk/">Accounting
Software</a> on excel spreadsheets providing complete <a
href="http://www.diyaccounting.co.uk/selfemployed.htm">Small
Business Accounting Software</a> solutions with single and double
entry <a
href="http://www.diyaccounting.co.uk/bookkeeping.htm">Bookkeeping
Software</a> for both limited companies and self employed
business

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