Small Business
Bookkeeping and Accounting
Systems Software

Small business accounting systems are numerous nowadays. How do you choose the one that is right for your business? I used three different ones in my practice ... then selected the one I liked best.

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At one time I did books using QuickBooks Pro, MYOB and Simply Accounting accounting systems ... whatever system (or version) the client wanted ... but not anymore. In 2001, I picked my favorite bookkeeping system product and have stuck with it.

I am not a QuickBooks Certified ProAdvisor at this time ... but I have used Intuit products since the early 90s and QuickBooks Pro since 2000. I probably don't know every trick the "Pros" do, but I have learned the basics ... and a bit more.

My long term goal for this page is ... that it will be the place to look for information on bookkeeping software packages that are a good fit with a small business operation. But you've probably already guessed, my preference is the QuickBooks accounting system. In the short term, I'll write about what I know first hand ...

... so I'll start my pointers on QuickBooks. As the site grows, I'll present other software options.

Hopefully my pointers will make it easier for you to become familiar with and use the software ... because it is so powerful once you get the hang of it.

Now having said that, some small business owners don't need or don't want to use a commercial software package. They prefer spreadsheets as their bookkeeping needs are not complicated. If that sounds like you, read this next section ... if not, skip it and move on down.

How to Change Your Bank Statement ...

... Into An Income Statement

If you don't have very many transactions and want to keep a very simple accounting system, you can easily turn your bank statement into an income statement. To find out how, head on over to internetbasedmoms.com and go to their small business bookkeeping page.

You will find an excel spreadsheet called 'Accounting Forms Packet' that is available to download.

Once there, read the instructions on the help tab and you'll be on your way.

This system tracks:

• who owes you money
• who you owe money to
• your net profit or loss
• and your bank reconciliation

This information is crucial to running a business. It could be the perfect system for your business at this stage. If you choose this system (or any system really), you should put on your to-do list to review your system criteria each year to make sure the accounting system still meets your needs.

Having a break down of your revenue and expenses is also useful information for running your business effectively ... as is managing your receivables and payables by using an aging report.

If you would like to have a breakdown of your revenue and expenses, and an aging of your receivables and payables with the click of a mouse, I would chose the QuickBooks EasyStart software.

Not sure how to interpret the information found on an income statement? If you want to learn about how to use your financial information to help you run your business, head on over to The Training where you will find a series of articles on How to Read Your Financial Statements.

Other Accounting System Options

Here are two other possibilities to consider:

The first option is great if you are only interested in using your data to file an audit proof tax return. If you bring your information in this format to your tax preparer, you should be able to reduce your tax bill.

The second is a simple way to track your cash when you are just starting out. It is recommended by Stephen Thompson, CA.

QuickBooks Bookkeeping and Accounting System Software

While you don't have to have formal bookkeeping training to use QuickBooks, you do need to have a basic understanding of accounting principles to ensure you have accurate data ... and there are certain procedures you must follow to ensure you have accurate data.

Sidebar-Free Software

Right now, you can try out the EasyStart QuickBooks software for free. So if you always wanted to try it but didn't want to put up the money ... here's your chance.

When you first enter the QuickBooks program, you are presented with a flowchart of the accounting system. It gives you an overview of how the program works. Try to understand the process by studying the flowchart. Once you understand that, things start to become easy. When in doubt, find out where you are on the flowchart and go from there.

The flowchart shown above varies. It depends what version you are using and what features you have. So if your chart doesn't look exactly like this one, don't worry about it.

Each version has five sections - Vendors (for accounts payable), Customers (for accounts receivables), Employees (for payroll and/or time tracking), Company (for COA and list management), and Banking (for banking functions).

QuickBooks Tips and Shortcuts

The QuickBooks accounting system does not require any period end entries, that is why it is important to set your closing date when you have completed your month-end procedures or year-end procedures.

This features allows you to always have access to prior years' data right down to the transaction level. It also allows you to create comparison reports.

QuickBooks automatically performs the following period end adjustments:

• The income and expense accounts are automatically zeroed out at each year end.
• The net income is automatically posted to the Retained Earnings account, which is created by QuickBooks, for any reporting period.

The "closing" procedure is date driven and occurs based on the reporting dates of the financial reports you request.

QuickBooks has a great feature for report time periods - This Month, Last Month, Year-to-Date, etc. that makes it quick and easy for you select your reporting period.

Soooo, to close QuickBooks each month-end you must:

1. Perform your month-end procedures.
2. Close your accounting period by setting the closing date. (See step 18 of month-end procedures.)
3. Safeguard your data against accidental change by backing it up.
4. Determine who has the right to change transactions in the closed period.

That's it!

Have you been wondering how to track the cheques issued during the month in your QuickBooks accounting system?

A quick and easy way to get a cheque listing is to go to Reports / Banking / Missing Cheques. Create the report for the time period you want.

What I do is modify the report heading to Cheque Register Summary and memorize the report for easy access. I make a point of printing this report each month-end for my financial reporting package.

Using this report, you will be able to track the sequencing of your cheques for your audit trail.

During the month, I update it and keep it handy for easy reference throughout the month too.

If you need to see the cheque details, then choose Reports / Banking / Cheque Detail.

The reason I prefer my "summary" report is that I can scan for a cheque quickly. The "detail" report prints a lot of pages and to use it, I have to flip a lot of paper.

So there are two ways to get track the cheques you have issued. It's your choice which you use.

There are two methods to book customer deposits/prepayments. If you use the liability method to process your customer deposits in your QuickBooks accounting system, here's how to keep track of who paid deposits.

• Create a Transaction Detail by Account report found under Reports/Accountant and Taxes.
• With the report open, customize the report. Begin with a click on Modify Report.
• Look for Total By in the columns section. Select Customer.
• Click on Filters tab.
• Filter the report by account and select the Customer Deposit account in the liability section.
• Click on Header/Footer tab.
• Change the Report Title to Customer Deposits.
• Click on ok.
• Click on the Memorize button to save the report for easy use ... consider adding it to your icon bar by going to the View drop down menu.

Here is an example of what the report would look like.

If you print a Sales Report by customer or by item, the deposit transactions will show up there as well, but not as nicely as this customized report.

This is an excellent example showing how customizing your reports in your QuickBooks accounting system will help you make good business decisions based on solid information.

If you are using a manual accounting system, HST/GST can be tracked and recorded in three current liability accounts to make reconciliations easier.

• The first account would be a current liability account called HST/GST Collected which records the tax portion of your sales transactions.
• The second account would be a contra account to the HST/GST Collected called HST/GST Paid (ITC) which captures all your input tax credits after a purchase from a supplier or vendor.
• The third account is also a current liability account called HST/GST Payable. This account is as a clearing account to record reports filed with the CRA on amounts owing or to be refunded. It should come to zero once you have paid the amount or received the refund reported to CRA.

When you file a report (Form GST34-2 E) with CRA, you would make the following bookkeeping entry:

Debit HST/GST Collected (amount on line 105 of your return)

  Credit HST/GST Paid (ITC) (amount on line 108 on your return)

  Credit HST/GST Payable (amount on line 115 of your return) - if you owe CRA

Debit HST/PST Payable (amount on line 114 of your return) - if CRA will be paying you a refund

Now when you look at your accounts, you know that anything sitting in either HST/GST Collected or HST/GST Paid (ITC) has not been reported to CRA.

Any balance sitting in the HST/GST Payable account has been reported to CRA and means you either owe money to CRA or are waiting to receive your HST/GST refund from CRA.

When you make your payment to CRA, you would book the following entry which should bring the account to a zero balance if you are up-to-date with your reporting:

Debit HST/GST Payable - the amount you owe CRA

  Credit Cash in Bank

When you receive your refund from CRA, you would book the following entry which should bring the account to a zero balance if you are up-to-date with your reporting:

Debit Cash in Bank

  Credit HST/GST Payable - the amount of the cheque or direct deposit

However, in the QuickBooks accounting system, it is not necessary to have three accounts. One account called HST/GST Payable handles everything.

As long as you are properly booking your entries and managing your sales tax in the sales tax windows, the QuickBooks accounting system keeps track of your GST collected and input tax credits for you. When you need to determine the amounts to report to CRA, you run your sales tax report for the details.

Here's an overview of how it works. Tracking sales tax has five steps:

1. Turn on the sales tax feature. This creates the Manage Sales Tax icon found on the right hand side in the Vendor section of the flowchart.

• Just be sure to go to Edit>Preferences>Sales Tax. Turn on the sales tax feature by answering Yes to "Do you collect sales tax?".
• Tick the Customer and Vendor Tax Codes so you can customize the tax code when necessary.
• Set your default sales tax codes to S for GST and PST (taxable items) and E for non-taxable items.

2. Setup of sales tax items and codes along with coding individual customers, vendors, sales items, and expense items.

• QuickBooks uses Items to setup sales tax codes which automatically applies the correct taxes on your sales forms, your bill payments forms, and/or cheque payments.
• Your initial Canadian sales tax codes and sales tax groups are setup for you. If there is a sales tax rate change, you may have to modify some of the items and codes.
• It will handle provincial taxes as well. Setup your PST information through the Edit Vendor Window for Minister of Finance.
• Setup your GST information through the Company Information window.

3. Collect sales tax through the sales forms - invoices and sales receipts.

• The default code setup in Step 1 was S for both GST & PST. You can change this so that a customer can be customized. For example, you can change the default tax code from S to G for GST only customers.

4. Capture your input tax credits through enter bills form and write cheque form.

• The default code setup in Step 1 was S for both GST & PST. You can change this so that a vendor can be customized. For example, you can change the default tax code from S to Z for zero rated GST vendors.

5. Pay your sales tax to CRA using the Manage Sales Tax icon. The icon was setup in step 1. It has the sales tax reporting features and sales tax payment cheque form (not the Write Cheque form).

• To find out what you need to report on form GST34-2 and how much you owe, run your sales tax liability reports.
• It is very important to pay your liability through the sales tax window NOT write cheque. If you use write cheque, your liability reports will be incorrect.

As long as you are entering your data correctly, the QuickBooks accounting system automatically tracks your sales taxes for you.

If you are not an HST/GST registrant, you will NOT be collecting GST (and should not as you are not authorized to). This means you do not qualify for input tax credits so there is no need for your accounting system to track the sales tax you pay.

In this case, when you record any purchase or expense that has sales taxes, the sales tax amount is either expensed or capitalized.

For example, if you purchased printer toner for $150 before taxes, you would record $168 to the expense account Office Supplies if you lived in BC. In Ontario, the amount would be $169.50 (because the PST / RST rate is different).

Even though you don't have to, you may want to track how much sales tax you are paying. To do this, you would create an expense account called Sales Taxes or Sales Taxes Paid. In the QuickBooks accounting system, the account setup is done through your chart of accounts. Each time you purchase something, you would code the sales tax amount to this expense account.

If you are under $30,000 in sales and not registered for HST/GST, you may want to consider registering voluntarily. Take time to read how you are paying more tax by not registering.

I have also created a Guide to Understanding HST/GST that explains why you might want to register voluntarily.

To organized and accurate record keeping in your accounting system! ;-)

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