Your accounting system

Your online business must have an accounting system.  It can be sophisticated, or it can be very simple, but you need one.  Your accounting system will:

  • keep track of critical tax information
  • provide a scorecard of useful information to help you track your performance
  • prevent errors and fraud.
If I’ve not persuaded you so far, this should do it:  The IRS requires you to have one.  ’nuff said.
What kind of system should you have?  It depends on several factors:
  • How many transactions you have a year.  (A transaction is either a payment received from a customer or a payment made to a supplier/employer.)
  • How many different suppliers, customers and employees that you have.
  • If your business keeps one or more separate bank accounts.
  • Size of your business, measured in revenues.
The number of transactions, the number of different suppliers, use of one or more separate bank accounts, and the amount of revenues all determine how sophisticated your business is.  The more sophisticated your business, the more sophisticated of the accounting system you need.
Suppose your business is like a consulting business I used to operate a few years ago.  I had one customer and received 4-6 checks a year.  I kept a simple spreadsheet of the checks received.  That worked just fine.  Even with a few different business expenses, a simple spreadsheet, like my Google Docs template, should suffice.
More sophisticated businesses will need dedicated accounting software.  I’ve advocated for GnuCash project, which would meet many users’ needs. If you’re ready to pay for commercial software, Quickbooks and Sage-Peachtree offers more sophisticated options, with significantly more functionality.  I recently found other “cloud” options, free agent and  kashoo, which looks great (I haven’t tried it).
When buying commercial software, you are usually best off buying the minimal program (which might even be free) and then upgrading if and when you need additional functionality.  Cloud options may require monthly payments.  I don’t like monthly payments.  However, they will not charge you for annual upgrades.
What accounting program do you use for your business?
[Image: Wikimedia Commons]

11 thoughts on “Your accounting system

  1. Hi Accountinator, I’ve been trying out GnuCash for the past several weeks. Even though I’ve yet to discover the nook and cranny of it, i’ve been quite impressed by GnuCash. It has a very comprehensive help files, which could be daunting for some, but very informative for me.

      • Yup, it does keep my desktop clean, as i don’t need to have spreadsheet (or pieces of papers) lying around reminding me on what i’ve been spending my money on for the past few days or weeks.

        Will do Accountinator. Cheers.

  2. Hi , I have to post an entry about transfering an amount of money from a uSD bank account to a euro bank account but it’s not workng , plz advise

  3. A bit off subject, but I found your article informative…actually your whole website. I am a soap maker and am approaching my third year in business. Up until now I have used an xcel spreadsheet, but am now looking into quickbooks online. The problem is that I have “manufacturing inventory” to account for and the only work around, according to Quickbooks, is to buy their incredibly expensive executive level software. …Not going to happen…
    With your knowledge of accounting and of quickbooks, can I create three inventory items called “raw materials”, “work in progress”, and “finished goods” and adjust their value quarterly to account for my assets in the business? I would of course keep a detailed xcel spreadsheet for how I came up with those numbers and my actual inventory detail, but do you think that could work? I’m excited to get your feedback. Thank you for your time.

  4. Hi
    Love your videos and website. I’ve just started an online business selling hair products. Just begun to use GNUcash but their is no function for stock and inventory accounts in current assets or have I got accountancy principals wrong.
    Please advise how to enter when I purchase goods from suppliers as stock for resale (by the way found sales accounts, and saw your video how to record via customer bill).
    Thanks

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