Accounting software is almost invariably based upon principles of double entry. To enter many transactions into the financial books, accounting software is used by accountants. For financial control purposes, financial information contained in the database can be queried, which is a major advantage not only to the finance staff but the overall company management as well.
Help for the accountant:
Small business accounting software helps an accountant to answer accounting questions on the daily accounts, report financial statements at periodic intervals regularly, ensure that the records are accurate, provide a legal basis for the transactions, as well as ensure that the financial records are customizable. Accounting needs of small businesses are different which are described better, as bookkeeping rather than accounting. Single entry bookkeeping principles can be used for non limited companies that do not need to produce a balance sheet. Just an account showing profits and expenditure within a statement can be produced.
When using a small business accounting software, less financial control is often required. In a small business the owner or manager is often the bookkeeper who already has an in-depth knowledge of every transaction in the business. For tax purposes an indisputable requirement of preparing a set of financial books is essential. The records are required for tax purposes. Also each entry in the financial books is supported by third party evidence. Bank statements, purchase invoices and sales invoices are examples of third party evidence. For tax purposes transactions without receipt are able to still be entering in the business books. All transactions without evidence could be disallowed. This would be the case if the amount entered indicates unusual expenditure.
Rather than making two lists of financial transactions, producing a statement showing profits and expenditure as well as single entry is little more simplistic. The two lists are:
- Purchase expenses are being from purchase invoices received from supplier
- Sales profits received from receipts or sales invoices issues to customers
It would not normally be sufficient to simply add up the total of the invoices as such kind of a summation does not leave an audit trail of included items, to record income from sales. An audit trail is surely provided by a written list of sale invoice.
Sales accounting:
In the case of a small business, the small business accounting software enables sales accounting either by using a spreadsheet package or a list that can be generated on a bookkeeping spreadsheet or a manual list of the sales invoices. It is advantageous using a spreadsheet for bookkeeping as simple formula can be used to add up the total in the columns. The sale date, sales invoice number, customer name and a brief description of the item sold which can be an option is essential information needed to enter successfully on the sales invoice. The total sales invoice amount is shown in the other column. Additional column required to accommodate sales tax or VAT if items are like added tax is necessary for accounts.
Additional columns could be incorporated in business accounting software to enter the net sales figures, if any additional information is taken from bookkeeping records to indicate totals of different types of services and products. The implications are at the discretion of small business owners. To satisfy requirements of sales accounting, a list of sales invoices helps a small business owner instead of a balance sheet. As far as the expenditure side of the business is concerned, bookkeeping can also just be a list of purchase receipts and invoices viewing the amount spent. By showing the total amount spent, purchase invoice for identification purposes can be generated. The name of date of purchase invoice and subsequent listing produces an audit trail.
Tax returns:
The purpose of small businesses using accounting software is usually to track tax returns. To explain what the expenses have been spent on, always some analysis is necessary. With sales accounting the owner or manager can add to the bookkeeping sheet additional standard columns, which is not at all difficult to achieve. For each type of expenditure the columns designed to show expenditure analysis do not need to be within different segments. To accommodate all the expenses it is easy to group the analysis columns and set up columns with general headings.
Premise costs, transport and delivery costs, repair and maintenance, other direct costs, stock, administrative costs, hotel and travelling expenses, bank and official costs etc. are the type of expenses included in such columns. As the type of expense has not been identified precisely, under a general heading, it is better not to enter too many items of other categorized expenses as this is likely to be investigated.