The best choice is often dependent upon the size of the
business and the employment of full time accountants,
accounting staff, bookkeepers or management of the
accounting records by the proprietor. Every business needs
to choose the most appropriate accounts package according
to both the requirements of the business and the
capabilities of the person or people who will operate the
accounting solution.
Many small businesses do not benefit from sophisticated
accounting software if the technical requirements of that
software exceed the abilities of the users to produce
efficient financial records and use the full capabilities
of the accounting software to maintain a high level of
financial control.
Alternatively a simple bookkeeping package may not offer
the degree of financial control over such financial matters
as debtors and credit control, creditors and cash flow
liquidity that may be required. Financial control and cash
flow is of supreme significance and importance when credit
is tight.
Every business needs to maintain a set of books and
accounts to satisfy the legal obligations to calculate the
net taxable profit which has to be both declared to the
taxation authority and provide sufficient financial records
to support that calculation.
Up until the mid twentieth century it was common practise
to produce accounts handwritten on paper, Typing being
reserved for the final set of accounts for publication as
required. Handwritten accounting records are largely
obsolete for medium and larger businesses although still
used by many small business organisations.
With the advent of computers accounting software has become
the norm and there are many simple bookkeeping packages
that can be easy to understand and offer sufficient levels
of financial control for even the smallest business.
In essence each small business has a choice between
preparing a handwritten set of accounts, using a simple
bookkeeping package which could be based upon spreadsheets
or a more sophisticated accounting software package that
almost invariably use a data entry system into a database
which can then be queried to produce the required financial
control.
Choosing handwritten accounts would only be applicable to
the smallest business where the proprietor had no
employees, limited numbers of transactions and had full
financial control without the need for written information.
Such handwritten accounts would not be suitable for any
business that required control over debtors and creditors
or that needed to produce a balance sheet.
For those businesses that could suffice with handwritten
accounts there are better options available such as using
computer spreadsheets. Minimal knowledge would be required
and the benefits substantial compared with being
handwritten.
An accounting package based upon computer spreadsheets is
suitable for most small business as it can be no more
difficult than maintaining handwritten accounts but in an
organised format. The sophistication of the format would be
according to the ability of the designer of the accounting
solution or the bookkeeping knowledge of the person
preparing the accounts.
Accounting software written on computer spreadsheets have
advantages in that they can save time in data entry,
improve accuracy, can be changed to correct errors, highly
visible and provide all the basic bookkeeping needs of a
small business. Accounting solutions written on
spreadsheets are normally limited in relation to financial
control and medium sized businesses that require additional
control over debtors and creditors may be more suited to a
database accounting software system.
Generally if a business is large enough to employ a full
time bookkeeper or accountant then that business
potentially has the accounting knowledge and skills within
the accounting function to use a database accounting system
and achieve the additional financial control elements which
become available.
Accounting software that uses a database has the facility
to produce regular financial and tax reports, debtors
reports and statements, creditors reports and statements,
cash flow statements and a set of monthly and final
accounting reports such as profit and loss accounts and
balance sheets.
The disadvantage of such accounting solutions is that to
get the most and best out of the system you also need to
understand how the package works and how technically to
obtain from it the benefits of increased financial control
that are available.
The main priority in choosing any accounting package is to
first determine the final requirements you need from that
administrative system. If detailed financial control,
particularly over individual supplier or client accounts is
essential and the business is large enough to employ office
based staff including an accountant or full time bookkeeper
then a database system may be the appropriate choice.
If the business is smaller and requires detailed accounting
records to support the year end financial statements while
financial control is already sufficient to be in the hands
of the business owner then accounting software based upon
spreadsheets would probably be adequate. The degree of
adequacy being dependent upon the level of expertise
contained and automated within the accounts program.
Handwritten books would be the lowest choice. Adequate for
some small businesses but only suitable if a computer based
option was impossible.
----------------------------------------------------
Terry Cartwright, accountant and CEO at DIY Accounting,
designs Accounting Software at
http://www.diyaccounting.co.uk/ providing accounting
solutions for small to medium sized business in the UK with
payroll software at
http://www.diyaccounting.co.uk/payroll.htm for up to 20
employees
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