From the Desk of Asif Nawaz

Bank Reconciliations aren’t something that most management/senior accountants do anymore.  They’re more of a check to make sure if everything adds up for compliance, and as important as it is to have to your bank account reconciled with your books, many businesses fail to do that.

I’ve had clients who haven’t done bank reconciliations for years, and truth be told, if you do it after five years, you will practically have to go back the five years to resolve the differences / problems.  It’s one of those things which can unnecessarily spin out of control in a short amount of time, so it’s good to do bank reconciliations regularly, and know where your money is, before the gap between your business’ financial statements and your bank account widens.

So, the idea behind a bank reconciliation is basically to reconcile the balance in the Bank Account in your books/GL with your bank statement.  Why would you need any such reconciliations?  Well, for several reasons:

- At the end of every month, there will be checks (if you’re American) and cheques (if you’re British) that you have received, and booked in your GL, and even deposited in the account, but they have not yet cleared and, therefore, do not show up on your bank statement.  The result of this is that your bank statement will understate your bank balance by the amount posted to the GL and not posted to the bank statement.

-  Similarly, at the end of every month, there will be cheques/checks that you have sent out to your vendors, but they have not yet cashed or deposited those cheques at their end.  The result, your bank statement will be overstated, whereas your GL will be understated compared to the bank statement.

- Bank charges.  These are very typical of first world banks.  Charges for check books, debit cards, remittances, wire transfers, cheque processing, etc. etc.  You do not get an invoice for such transactions (or any others that are deducted from your account via a standing order), and you, therefore, need to book these to your GL when you see them on your bank statement (given that they are valid and that the bank is not ripping you off and somebody’s not having a party with your money that you’re not aware of). 

- Compliance.  Try and get an audit done without a bank reconciliation; it’s not going to happen.  Even small businesses, who may occassiaonally require a financial audit of their books and financial statements for lenders, etc. will need bank reconiliations.

So, what exactly is a bank reconcliation?  The goal with a bank reconciliation (or a bank reconciliation sheet, used to complete a bank reconciliation) is to show both the bank and GL transactions, and bridge the gap between the two numbers.  At the end of completing such a reconciliation, you will come up with a reconciled balance, which will show entries that appear on the GL but not on the bank statement and vice versa.  What you will need to do now is book all those entries which appear on the bank statement but not on the GL in your books.  The result of this booking should give your bank account in the GL the same balance as the one on the bank reconciliation sheet.

To make your life easier, I’ve compiled a spreadsheet (which you can download at the end of this article), using which, coupled with the following instructions, you can easily complete a bank reconciliation.

What you need?

1.  Bank Statement for the period being reconciled
2.  Your Bank Account printout from your GL listing all transactions posted to the bank account in questions
3.  The Bank Reconcliation spreadsheet (available for download at the end of this article)
Here’s what you need to do:

Compare the bank statement and the GL printout line by line in chronological order.  Your GL printout should be in chronological order just like your bank statement, but if it is not, simply export it into excel and do a Data > Sort by the appropriate column.

So, you go through both the bank statement and GL line by line.  Cross out items (identical items / entries) that appear both on the GL and the bank statement.  Leave blank, highlight / mark or make note of items / entries that appear on the GL and not on the bank statement and vice versa.

Now you enter these items in the appropriate area in the spreadsheet.  If you have more line items to enter than the spread sheet has, you can simply add more rows and adjust the summation formula accordingly.  No complex formulas have been used in the making of this spreadsheet.

That’s it, if you’ve entered the right numbers in the right places against the right entries, your bank reconcliation will balance, and you just make the appropriate entries in your GL, entries for items that appear in the bank statement and do not appear in the GL.

Sounds simple enough?  It is.

Any problems.  Feel free to post them as comments.

Click here to download the Bank Reconciliation Spreadsheet.

There is a reason today why accounting for big business is so complex, tedious, and requires a large staff of people to manage; and you’d be surprised, it’s not because so many people are needed or because the work is too difficult; it is simply because most big businesses fail to utilize the tools available to them and are unable to maximize the efficiency and productivity that they can get out of such tools.

 Over the years, I have consulted for several small businesses.  Most of them were moving into that phase from a very mom-n-pop setup to becoming an established small business, where they were going to start implementing some formal accounting procedures, have proper policies, and were going to get organized because that it is what it would take for them to be able to keep up with the amount of business they were getting.  It is worth saying that even in large businesses, it is the fallacy of management, as it is in some medium and small sized firms too, that each departmental head ends up treating his/her department like an individual business unit, and that’s a big deviation from what the goal originally was when any such department was setup.  It is, therefore, imperative that businesses at all times keep in mind that the costs formal accounting, formal policy, statutory compliance, management accounting etc. are all overheads, and if they are not managed, they can seriously cut into the bottom line profit of any business.

 So, why is there such a disconnect in accounting; costs are soaring high, compliance is becoming more and more difficult, and every year, the financial statements for public and private companies become more difficult to read and understand.  You would think, that with all the state-of-the art software and information systems available to and affordable by such businesses, they can reduce the their costs, drive efficiency into their accounting policies and procedures, and efficiently produce GAAP, SOX or whatever-it-is-that-you-need-to compliant statements, and spend more time and resources simplifying the information for potential investor and outside parties with a vested interest.  Of course, the latter doesn’t happen for a multitude of reasons, but we shall steer clear of that discussion.  After all, the whole premise of this article is based on the Corporation not being evil, and what changes it needs to go through to harness the power of modern financial information systems.

 There several ERP type solutions available to big business today.  Oracle, JD Edwards (now owned by Oracle) and SAP are the three market leading ERP Solutions, and if they are used right, a big business can do wonders with it.  The problem, however, is that just purchasing any of these solutions is not going to be enough.  Hundreds and thousands of hours have to be spent on customizing and developing the blank platform that these solutions provide, and it is in this department that most big businesses fail.

 You see, customizing JD Edwards, SAP or Oracle requires:

 - Extensive Business Planning
- Serious Systems Analysis & Design Knowledge
- Minimum interference from IT Staff during these two phases
- Input and involvement of Accounting & Finance Staff
 

I have seen too many businesses that will purchase an expensive, fancy piece of software and pressure their IT Department to get it up and running in a week!  It doesn’t work like that, and it will never work like that.  Here is how, in a nutshell, an installation: 

Once you’ve decided that your business is growing to the point where you need an extensive piece of software, it’s time to get your act together.

 Map your business requirements, systems and workflows.  This is absolutely the most important part of the process of implementing a massive information / financial system.  If you don’t know where your data flows from, WHAT EXACTLY that data is, where it comes and from and where it will go, and how it is transformed from data to understandable information, you’ll never be able to utilize the software the way it was meant to be used.  Most businesses that skip this entire process and take a “develop as you use/grow” approach toward customizing and evolving ERP software like JD Edwards or SAP will suffer massive problems, to the point where they will have so much legendary data of one sort, that they will end up hiring an extra person to manually manage every additional feature that they could have initially built into the financial information system.

 Systems Analysis & Design.  This is where your hardcore IT Department needs to stay out.  Might I suggest that the purpose and goal of most IT Departments is to TECHNICALLY do and make possible what is asked of them, instead of taking on a more hands-on approach to changing processes to keep more control in their hands.  You see, ultimately, the end user, who in this case is your accounting and finance staff, or sales staff, has to use the software, and the requirements should come from them, and should not be translated to what the IT Department thinks they are.  That’s why you need a systems analyst, to map the business requirements with what is technologically feasible, and ultimately, what is more cost effective, letting IT have it their own way and hiring extra staff (and paying for the software), or just paying for the software and making do with existing staff?  When I finished as a student and started my career, people used to laugh at the concept of a systems analyst, and the ultimate mockery of the system analyst profession was made of by the Computer Science geeks, most of who make up IT Departments.  Although the culture has now changed, I cannot tell you how many gazillions of dollars this lack of analysis has cost Corporations around the globe.  Somebody has to bridge the gap between business and technology, and I can assure you, your IT Department will never be able to do it.

Well, I’ve said enough about this, haven’t I?

Yes, please!  These are the people who will be using your financial information system.  They know what is needed, and they know WHY they need it too.  So, when you buy software and develop it for them to use, shouldn’t they be the ones directing the development of such a software.  I cannot believe how many businesses simply leave out the end user when planning on making big changes to their accounting and finance software systems, and to efficiently make such a change and plan for growth and more of this tedious accounting work, it would do good to solicit these users for advice before making the blunder and hiring 15 extra staff members!
 
Remember, the teams that design, implement and support need to be separate from each other, because if they’re not, the on single team will ultimately try to make it’s life easier and profitable in the long run.  That means you’ll waste thousands on software, get crappy design, and will end up paying to hire people to do things manually.  Might as well skip the ERP software purchase.

The first part of this article discussed the things that needed to be a part of a small business accounting package, and what help the existing software in the market typically needs, and whether or not a small business can actually do without the help of an accountant or book-keeper.  Let’s put all of that aside, and now simply talk about the accounting software available in the market as is.  The packages I have used, and most of my clients use, and ones that are available almost globally will be the subject of discussion here.
Of the four packages mentioned here, QuickBooks and SAGE are scalable from small business to medium business.  So before I dwell into which is superior and which is not, if you think you have a business that will grow or develop at a rapid pace, and will outgrow the circa definition of a Small Business, maybe you’ll have to stick to one of these.  That’s not to say that Peachtree or Microsoft Office accounting cannot support medium size business.  It can, with intelligent, creative (but legal) accounting.

QuickBooks – The Good

In my opinion, QuickBooks is probably the most comprehensive of out of the four packages (QuickBooks, Peachtree, Sage & Microsoft Office Accounting).  It provides relatively efficient functionality, with a standard interface, customizable reporting, and it won’t cost you an arm and a leg.  Feature-wise, it probably contains more than any of the other three pieces of software; it will do the basic accounting, invoicing, payroll subscriptions, credit card transactions, GL, PL & SL, prepaid (well, sort of), customer statements, financial reporting, etc. etc. etc.  Quickbooks ALSO has some concept of drill down functionality, which can be relatively insightful at the click of a button.

Another area that QuickBooks has a big plus in its wide market area and availability of support.  It is relatively easy to find QuickBooks consultants (certified or not).  The support network is out there, and their own web site can guide you on where and how to find support.  Plus, if you’re in the US, QuickBooks is the software of choice for many US Universities, making most accounting graduates QuickBooks literate, if not experts.
In addition to the friendly interface, QuickBooks is relatively self explanatory.  The titles in the menus, the screens, the interface, the ease of use, all makes it a very efficient piece of software, especially if you’re a computer literate accountant.  Even if you’re not, the learning curve is not too high.

QuickBooks – The Bad

From my position, I really don’t have much bad to say about QuickBooks.  I’ve been using it for several years, and functionality wise, there’s really not much wrong with it (in comparison with other accounting / bookkeeping software in the market).  The only possible drawback is that it’s ultra feature richness may make it confusing for the not so computer literate accountant/bookkeeper.

Technically, QuickBooks has one pitfall.  From year to year, newer versions come out, and compatibility has been an issue in the past.  If you upgrade, you have to convert data, and although it’s not that tedious with the new version, it would be much simpler if Intuit simply made Quickbooks backward compatible, which it probably doesn’t for reasons of profitability.

Sage – The Good

Really, I don’t have much to say here.  In the near future, you will see me as both a QuickBooks Pro Advisor and a member of the Sage Accountancy Club, and that’s because it is good for business, and the UK is infested with Sage Line 50.  It’s an okay piece of software.  The interface is relatively standard, and it can pass off as a bookkeeping / accounting software, although all the others will give it a run for the money, and probably beat it.

Sage – The Bad

There’s a lot to say here, but I won’t bad mouth them too much.  No drill down functionality, unfriendly interface, unfriendly usability, restrictive, poor layout, etc. etc.  Clearly, you can tell that this is my least favourite software, so I’m going to stop talking about it now.

Peachtree – The Good

Peachtree is a fantastic piece of software.  Although I trained on QuickBooks Pro in university, the first piece of accounting software I used on the job was Peachtree Accounting 2006.  I was pretty reluctant about it first, but as it turns out, Peachtree  is a wonderful piece of software.

It’s a less dull, less serious looking version of Quickbooks, and offers virtually all the functionality of QuickBooks.  There’s less gray (unlike Quickbooks & Sage); the interface and layout are very clean, the different templates are customizable (as they are in QuickBooks), and it offers all the supplementary functionality (credit cards, good journal layouts, invoicing, POs, SOs, etc. etc.) .  All in all, this is a great piece of software, and is a wonderful place to start for any small business.  It’s not to heavy on the pocket, and you don’t have to be a rocket scientist to figure out how it works.  Oh, and Peachtree offers some drill down functionality like QuickBooks (unlike Sage).

Peachtree – The Bad

Peachtree is only US compliant.  The software is not available for purchase or use outside the United States, and it doesn’t support multi-currency.  What’s worse is that Sage has bought Peachtree from Best Software, and it has become Sage’s way into the US market.  As long as they don’t make drastic changes to Peachtree, it is a fantastic piece of small business accounting software.

Microsoft Office Accounting – The Good

Okay, this is Microsoft’s first step into the Accounting domain.  Originally termed Microsoft Small Business Accounting 2006, the software was renamed to Microsoft Office Accounting, and rightly so.  It’s a sharp mixture of QuickBooks and Peachtree functionality the Microsoft Way.  What’s good here is that this is one of the very few small business Accounting Packages on the market that will support multi currency without any issues, and it can probably pass off as a software that doesn’t necessarily require you to be very accounting literate.  Why, you ask?  It shares a striking resemblance to Microsoft Office, hence the name Microsoft Accounting.  The idea here is that if anyone can use Microsoft Office Products, they should be able to use Microsoft Accounting.

Frankly, I have been impressed with Microsoft’s first try at Accounting Software.  It may need some bug weeding, but all in all, this is a good starting point for Microsoft, and after months and years of using QuickBooks, Peachtree & Sage, it didn’t make much for me to get comfortable with Microsoft Office Accounting; just a couple of  hours.  This is a very affordable software for most small businesses, and provides the BASIC functionality of Quickbooks & Peachtree, without passing off as a complex, confusing or difficult to use accounting/bookkeeping package.

Microsoft office Accounting – The Bad

At this point, since this is something that is actively being developed my Microsoft, credit card processing, payroll etc., though existent, are slightly limited.  Although most small businesses don’t use these features from within the software, they are useful considerations, as a small business truly sees the use and efficiency of the software if functions like payroll are managed from within the software.  This software is certainly scalable, but at this point it’s a very good basic package for small business, and scalability is yet to be seen.

I’m sorry I’ve had to cut this article short.  I had intended to write very detailed reviews, but I just haven’t been able to find the time to do it.

If you’re in the UK and looking for help with any of the above products, feel free to contact me or VAFTA Solutions Limited.  Ultimately, what’s best for you depends on your  business habits, practice, requirements, and your accountant/bookkeeper.

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Over the past 7 years, I’ve served in various accounting-related positions, and I have seen all different kinds of people throw around different kinds of words pertaining to accountants and bookkeeprs.  The three most common ones are bookkeepers, accountants, and beancounters.  Well, some might say nobody really gives a damn what people say, but in a world where corporations rely solely on image to get business and ruin the economy, classifications in your field followed by the right subsequent designation/job title can be very important to the success of an accountant.

So, what is a Bookkeeper?

Let’s start off by saying that all accountants need to know how to do bookkeeping.  Bookkeeping, without getting into too much of the history, is simply the act of keeping books using the Double Entry System.  As a bookkeeper, you maintain ledger accounts in all the different ledgers, and maintain all subsidiary documents like the cash book, etc.  Sounds similar to what an accountant might do, right?  Well, yes, it is.  However, the role of a bookkeeper ends at the Trial Balance.  Once your accounting period ends and the ledger accounts are closed to produce a trial balance, and once the trial balance is produced, it is ideally handed over to an accountant to generate the statements or reports.

So, what is an Accountant?

An accountant is an advanced bookkeeper, who is familiar the typical financial statements: i.e., Profit & Loss Account / Income Statement, Trading Account, Balance Sheet, Cash Flow, etc. etc.  But keep in mind that being an accountant does not mean that you are familiar with the statement.  The key is to know what goes into producing such a statement.  Income Statements and Balance Sheets are relatively simple and standard, but then the cash flow is a statement most accountants struggle with, and its not their fault.  The typical cash flow statement isn’t exactly designed for efficiency, and that’s where the roles of different accountants come in.

So, to sum it up, an accountant uses the information produced by a bookkeeper to generate meaningful financial statements and reports.  An accountant MUST have comprehensive bookkeeping knowledge, and must continue to practice his/her double entry/ T-Accounts skills, or really, he/she won’t make for a very good accountant.

Public Accountants will NOT be covered in this discussion.  They are also known as auditors.  We all know they don’t warrant much discusson.

Financial Accountant vs. Management Accountant

Okay, this is an unusually fancy difference between Accountants, and I think it exists primarily because of the politicization and commercialization of institutions like CIMA and IMA. 

Financial Accountant is basically classified as someone who prepares financial statements and reports, i.e., your standard P & L, Income Statement, Balance Sheet, Cash Flow, Aged Receivables, Aged Payables, etc. 

A Management Accountant is supposed to be someone who converts these financial statements into reports that management needs for their analysis, which should ideally make a management accountant a mix of a corporate finance expert and a financial accountant.  As interesting as it is, almost ALL good financial accounts have the knowledge needed to for the role of the Management Accountant, if you are an Accountant who can’t understand what the needs and requirements of management are reporting-wise and you cannot deliver them, well, then you should rethink your career.

Let’s be clear on one thing: Bookkeeping and Accounting are complimentary work; one cannot exist without the other.  In Small Businesses, you typically only have one person doing everything (as unwise as that may be for a multitude of other reasons).

I’m going to write another article on typical job titles / designations very soon, because in the Accounting field these have become extremely diverse and confusing.  It’s more fancy work, ultimately the commercializtion of the profession, but then that’s what the world loves most.

With the plethora of accounting certifications and qualifications out there today, no matter what country you are in, it can be a daunting task to choose which certification is right for you.  Gone are the days when if you were a young fellow who aimed toward getting the Certified Public Accountant Certification (CPA) issued by the AICPA in the US; gone are the days when you could just become a Chartered Accountant (CA) in the UK, or for that matter anywhere else in the world.

The typical certified public or chartered accountant today is just one of the many recognized, approved and qualified accounting certifications today.  There are numerous others, irrespective of where you are: the Association of Chartered Certified Accountants (ACCA, International) Certification, the Association of Accounting Technicians Certification (AAT, UK), the Certified Management Accountant (CMA) & the Certified Financial Manager (CFM) Certifications issued by the Institute of Management Accountants (IMA, USA), the Chartered Institute of Management Accountants Certification (CIMA, UK & International) which is totally a tier based certification, starting with entry, managerial, strategic and TOPCIMA.  If you dig deeper into the US & UK Markets, you’ll see many others, and each of them has their own following.  I recently found out that there was an Institute of Financial Accountants (IFA) in the UK, and it’s a pretty major organization.  Interestingly enough, I’ve never seen ANY job advertised asking for a certification from the IFA.  Questionable?  Who in the hell knows.

But here is what I can tell you.  Accounting has become a diversified field.  The certifications mentioned above are only some of the management/financial/public accountant type, and there are other new accountant types, which come with some fascinating certifications of there own.  The upcoming accountant job titles you will come across now are forensic accountants, environmental accountants, project accountants, systems accountants, etc. etc.  The list is never ending.  Gone are the days when you trained to be a Director of Finance/CFO, Financial Controller, or simply strived to become an auditor in a public accountancy firm.  However, in today’s competitive world, no matter what country you are in, it is VERY important to pick the accountancy field that you want to go into.  Since each of these fields/job titles in accounting has its own relevant certification or qualification, it can sometimes be difficult to trespass from one into the other.  Also note that some of these are not multinational certifications, and when going cross border, especially between 2 first world countries (the US & UK, for instance), having one kind of a background or certification can cause you quite the grief.

Take, for instance, the simple line of Financial & Management Accounting.  There are people out there, and particularly recruitment consultant characters, who will try to convince you that there is a LOT of difference between Financial & Management Accountants.  Well, I’m here to tell you: bull-fecking shit.  Management Accountants are for incompetent business owners; financial accountants are for compliance.  That statement is true, but what good is a financial accountant who can only comply?  That’s no accountant; he’s a simple instruction taker.

Back to the topic at hand.  If management or financial accounting is the field you want to pursue, well, CIMA is your certification for Europe and most parts of Asia.  If you are in the US, CMA or CFM from the IMA is the direction you should be headed in; and despite the common ground between the two, do NOT be confused or deceived.  One will not co-operate with the other.  The two are essentially competitors, with the IMA fighting for international recognition alongside CIMA.  But get this, the AICPA feels so threatened by the IMA in the US, primarily because they are rightly carving our a different role/job description for financial managers in firms (a very niche position that CPA/CA types aren’t meant for), that they went out of the way to cut a deal with CIMA, saying that CIMA is indeed a decent certification, and that CIMA is an institution they recognize.  There was an entire article in the IMA Magazine regarding the issue, and the problem is, the AICPA cannot risk losing the value of its members within the US, so it refuses to accept the separate role or importance of Financial & Management Accountants.

But the US is not a country where all is lost.  Quality matters.  America is probably the only place in the world where at some level, it’s not who you know, but what you know, with the result that even today, you can succeed in industry/private sector in the US without any certifications, but only if you know what the hell it is that you’re doing.  Ideally, if you are going into industry, stick to the IMA Certifications: CMA & CFM.  They are relevant!  AICPA has become bloated and extremely political, and let’s face it, most Certified Public Accounants really can get dull.  It’s not their fault.  If you sole purpose in life is to assure the work of others, your existence falls into the misery of being second for good!  AND, due to the tactics and acts of Certified Public Accountants, today, if we creative financal & management accounting types get creative with our work, we get penalized.  Way to go, AICPA!

Now, if you’re in the UK, CIMA is the way to go.  I have seen, with my exposure to this market, and some Asian & Middle East ones, that being a Chartered Accountant always helps.  It looks good, no matter what job you apply for, but it is not always relevant.  Being a CA does by no means make you good at management or financial accounting; it just means you can dig yourself in papers for hours and hours and not get fed up, which, on a whole different level, is something admirable since I myself have difficulty with that.  Certifications for Private/Industry Accountants in the UK with value are the ACCA, the AAT, and CIMA.  Note that if you come to the UK with other certifications from other countries (other than a CA which is issed by an Institute which is authorized/accredited by the Institute of Chartered Accountants in England & Wales [ICAEW]), like the ICMA you can get in India and Pakistan, which is the Istitute of Cost & Management Accountants, you won’t get too far over here.

For some reason, the ACCA is considered a medium level certification over here.  I’m not sure why; maybe they haven’t advertised or marketed enough, but ACCAs are for some reason not given executive treatment, especially not to the level of the CIMA qualified personnel.  CIMA, in the UK, is considered an executive level certification, and passing it in this country means that you have stood the accounting test of time, and deserve salary, whether or not you know anything is irrelevant.  Although the basic content in ACCA & CIMA is comparable, as is the basic content of the CMA and CFM in the US (with an exception ot the differences between US GAAP, UK GAAP & IFRS/IASB), CIMA has marketed themselves well, and has forged business alliances that have given them the executive reputation.  So, if you want to make it big in industry as a Controller, Director of Finance, VP of Finance, or a CFO, CIMA is the Certification you should be looking that.  Correct me if I am wrong, but I think you will get there with the ACCA too.  It will just take longer than with CIMA.  AAT, on the other hand, has been coming up with all the positive marketing they’ve been doing lately.  However, I think AAT is still considered an entry level professional certification for non-accounting degree holders, and it makes you familiar with some of the technical aspects of accounting in the UK: VAT, PAYE, NI, etc. etc.  Hence, the name Accounting Technician.

Let’s be honest, interesting or not, right or wrong, there is a big following that goes with the CPA and CA Certifications.  So you’re always playing it safe by aiming for one of those.  They may not be relevant for industry, but they will and have always held their importance, since auditing has become a vital part of big corporate money.  Of course, if it has been your lifelong dream to become a public accountant, to project your affairs into other people’s business, and spend the rest of your professional life assuring others that their work is upto par, well, what can I say, by all means, go ahead.  No offence meant.  I have nothing against Certified Public Accountants or Chartered Accountants.  I just think the role of Auditor is boring.  I could never do it.  I barely got through Auditing Class.  Unto each his own, eh!

This article is written courtesy of VAFTA Solutions Limited.

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Small Business has seen a dilemma when it comes to choosing and using an accounting package. The UK is primarily dominated by SAGE. The US sees plenty of QuickBooks and Peachtree, but there are others in the market too. The problem, however, is that although these three pieces of software along with the others provide a basis for double entry accounting, they don’t have what it takes to get true accounting automation, and I have to sadly say (now that I am in the UK) that SAGE is probably the worst out of the three.

All small business accounting packages suffer from similar diseases; not enough drill down user functionality, weak, if any, accountability for prepayments, deployment over multiple locations (without actually paying out of your nose) etc. etc. Despite all of that, I think it would be beneficial to review and discuss:

1. What is it that will make for a good Accounting Package, and

2. Which should you choose: SAGE, Peachtree or Quickbooks?

I’ve tried to look for reviews on the internet comparing the three accounting software packages, but I’ve had no luck. I have found some interesting articles that point to the shortcomings of SAGE or Quickbooks, but I’ve yet to see something that ideally tells you what’s good from a small business owner, accountant or book keeper’s point of view. There’s a good article http://nothing.tmtm.com/archives/2582 that discusses some of the fallacies of SAGE, and I totally agree with the writer, although I’m not sure small businessmen will ever be able to handle their accounting without the help of an accountant or bookkeeper. The double entry system is to blame for part of that; and people’s unwillingness to sit, think, and learn, given the lack of availability of time to the small business owner will make it impossible for business owners to use any accounting software independent of a professional virtually impossible.

that discusses some of the fallacies of SAGE, and I totally agree with the writer, although I’m not sure small businessmen will ever be able to handle their accounting without the help of an accountant or bookkeeper. The double entry system is to blame for part of that; and people’s unwillingness to sit, think, and learn, given the lack of availability of time to the small business owner will make it impossible for business owners to use any accounting software independent of a professional virtually impossible.that discusses some of the fallacies of SAGE, and I totally agree with the writer, although I’m not sure small businessmen will ever be able to handle their accounting without the help of an accountant or bookkeeper. The double entry system is to blame for part of that; and people’s unwillingness to sit, think, and learn, given the lack of availability of time to the small business owner will make it impossible for business owners to use any accounting software independent of a professional virtually impossible.As a professional accountant with a degree in Information Systems, I have a slightly different point of view about what accounting software should do and how it should work. I’ve also been a small business owner, and I’ll tell right off the bat that when I ran my own business, I could not take the time every day to sit down and update my books; hell, I couldn’t take out the time once a month, and I fell behind on my books drastically; but I can fix them come year end, because I know exactly what it takes. What about someone who doesn’t?

If software or accounting automation were to function ideally, whenever you made a sale or provided a service, the appropriate entry would be made automatically and it would update your books. Well, you can get part of that in a retail business, even with small business software like the QuickBooks POS terminal, but it still won’t do your depreciation, purchase of fixed assets, bill payments, etc. etc. automatically, even if you paid for and used every damn service you can subscribe for through Intuit over the internet. On the other hand, if you have a service business, well, you’re totally screwed! You’ve got to do everything yourself. The point is, for those of you who are thinking that “Ah! There will be accounting software that will do everything on its own one day,” the answer is no. That cannot be.

That’s basically because firstly the wonderful governments of the first world want extreme compliance with some rather unnecessary laws and regulations, and software will never be allowed to automate everything simply because a human being needs to be held responsible if something goes wrong. Second, we accountants love being in control. Corporate Accounting, for instance, can be the most dull job you have on earth, but the ability to tell someone “do your work and do it right, or no pay for you, buddy!” is excellent. Well, I like having my control over the money anyway. Third, and most important, the whole purpose of a double entry book keeping system is reconciliation. Everyone’s work is reconciled by another until an auditor signs off on it, and even then, sometimes the government comes in to reconcile that. As long as the basis and purpose of accounting is reconciliation and accountability thereof, accounting software will not become fully automated or “accountant-less.” Besides, the way I fathom fully automated accounting software, no small business could possibly afford it today.

Enough dreaming! Now, let’s get down to business. In the real world, what is it that a small business, say, any business ranging from GBP 200,000.00 in revenue to GBP 10,000,000.00 in revenue per year should look for? First and foremost, as discussed earlier, something that cuts down on accountant or book-keeper time. Now, what exactly does that mean? Things that a small business will primarily need a book-keeper or accountant for are:

1. Accounting for prepayments

2. Payroll accounting and returns

3. Depreciation for GAAP and Tax purposes

4. Minimizing tax legally

5. Useful, sensible reporting

1. Prepayments, if you think of them mathematically or simply, are nothing complicated. Even in simple double entry accounting, prepayments aren’t too complex. The concept is rather linear; if you pay for something before it was due, it becomes a current asset for the time being, automatically being written off against a liability that will arise in the future. So, what exactly is the simple accounting behind this? Say you pay your office rent 3 months in advance. The rent for the whole quarter becomes due on the first day of the beginning of the quarter. In such a scenario, in double entry accounting, you will:

a. You will cut a check for three months rent on the 1^st day of the quarter, say, the 1^st of January, for 3 months (from January 1st to March 31^st, 20xx). Assume here that your monthly rent is 1,000, and the 3 months’ rent is, therefore, 3,000.

b. In your books for January, you will make an entry for rent payment of three months on January 1^st, crediting your cash account with 3,000, debiting your Rent Expense account for 1,000 (for the month of January) and Prepaid Rent/Prepaid Expenses Account for 2,000 (for the prepaid rent for February and March).

c. When you prepare your financial statements at month end, you will show 1,000 in Rent expense on your Profit & Loss Account (if you’re in the UK, Asia or most of the Middle East) or Income Statement (if you’re in the US) and 2,000 in the current assets section on the balance sheet.

d. In the month of February, you would credit the prepaid expense account and debit the rent expense account with 1,000 each, respectively. Your balance sheet in February month will show only 1,000 in prepaid assets. Repeat for March.

e. You’re done!

As you can see, this isn’t really too complicated. The accounting is simple, but you have to be familiar with basic double entry debits and credits to do it right. I can’t tell you how many professional accountants screw up prepaid accounting, so let’s not blame small business owners for pulling their hair out with unusual and possibly unnecessary debits and credits for something as simple as a rent prepayment. You’d think that paying it for 3 months in advance you wouldn’t have to worry about for 3 more months. Unfortunately, that’s not the case in financial accounting.

2. The usual second hang-up in small business accounting is payroll. Now payroll is not rocket science; it is systematic and the method is well documented. But, undoubtedly, payroll is a very tedious and boring part of corporate accounting. Keeping track of different and changing income levels with different tax brackets and doing quarterly returns can, quite frankly, be a bitch. It’s not difficult; it’s just bogus. However, a small business can simply choose to outsource this function altogether. Depending on where you are and how many employees you have, you can outsource payroll accounting and disbursement for as little as $100 per month per employee or $ 300 per month in total. Please don’t start emailing me about where to find companies that can do this for you. Look around in your city. Ask a local accountant or check with someone like TriNet if you’re in the US. If you’re in the UK, well, you can contact me.

3. Here’s another subject I’ve seen small business owners get heart burn over. I have worked with clients and bosses who were shattered because straight line depreciation as per GAAP put a serious dent in their profits. It took a lot to explain to them that this was good for tax purposes (although that may not be true since you have to use government compliant depreciation methods depending on which country you’re in) and it didn’t really matter for scoring points in front of your bank, friends, or date. But managing statements that reflect and don’t reflect different types of depreciation, depending on who the financial statements are being made for can once again, be a boring and tedious task; one most small business owners would want to rid themselves off. Welcome to the real world; different institutions want your fixed assets accounted for differently. How would you calculate the life of each asset? How many years to break it down over? What percentage do you have to depreciate it according to the IRS? Treat it as real property or not? How about land and buildings? Who the hell is going to keep track of all the assets in your business? Computers, desks, chairs, fittings, etc. etc. Sounds like a full time job, doesn’t it? It is painful!

4. Corporate Income Tax, Sales Tax and/or VAT. Such wonderful terms. I assure you, even those of us who love taking your money for doing your taxes hate doing them just as much as you do. Again, although taxes can get really complex, they’re typically, for a small business owner, not too bad. That doesn’t mean they can be. When small business owners start making personal payments from the company account and start charging gifts, kids tuition, cars, rent, alimony etc. etc. for their extended family to the company account, the tax business can get rather nasty, especially if you don’t stay on top of it at month end, and tackle it while you can with your quarterly payroll return. However, I will say that even the tax return system is relatively developed. There is TOO MUCH documentation available on how to complete and file your return, and some software will typically be pretty helpful. But to maximize your tax benefit, you do need some tax craftsmanship, and that only comes with experience and knowledge of accounting and taxation. And who in the world will spend his time studying tax law and procedure unless he’s getting paid money to do it? No one. You’re better off getting professional help for this from the get go. Plus, by doing so, you don’t have to worry as much about the tax department coming down your ass for making simple mistakes. However, do keep in mind that if there is a mistake, and even if you have a chartered accountant sign off on it, it’s going to be the small business owner’s ass if there’s a problem. You need an accountant for this; I can’t stress how bad it is when you’ll get penalized $ 1,200 for trying to save $ 750 you could have paid an accountant initially, because second time around, you’ll be paying the 1200 and the 750. Do the Math!

5. It’s great to get professional looking P&Ls, Income Statements, Balance Sheets, Cash Flow Statements, etc. etc. etc. It’s very good for the small busiess owner’s ego to see a professional set of financial statements and reports with the business logo on it, but to most small business owners, the typical financial reports can be pretty damn useless. They’re a good measure to see how you’re competing with the big business on numbers, but useful reports that explain cash flow or budgets, that compare pro formas with actuals, present value and future value statements and calculations, and other such reports require some planning and thinking, and definitely need some kind of a financial background, if not an accounting one. It takes quite an accountant to explain a cash flow statement. A typical cash flow statement made under US GAAP is very user unfriendly, and I’m not sure a small business owner would want to spend his time on figuring out what exactly it means. That’s why you will need an accountant to explain or simplify any typical, standard reports that your accounting software may generate. Of course, if you’re happy without knowing what’s really going on, you probably don’t need to understand any of it. But for a growing and developing small business, accurate, useful financial reporting that provides valuable information, not data, is vital. It the job of a financial or management accountant to convert this data into information, and then present it to the man in charge of the business.

Now that we have established that a small business needs a professional accountant, or professional help, let’s discuss what it is that the accounting software in the market should about the above to minimize or reduce the use or functions of an accountant to reduce the overhead associated with having an accountant.

The Accounting Software Wishlist not available in existing software – by today’s standard

1. Let us first start of with drill down functionality. Let’s say, you have your balance sheet on the screen, and the figure for current liabilities looks a little out of whack (doesn’t it always?), and you want to see what makes up the massive number of US $ 2,,467,589.45. Well, if you were using SAGE, or any other third class third party accounting software, you would hear your PC make a buzzing error noise, that annoying sound that it makes on different occasions for different problems that sounds something like “tun`!” That’s because there is a lot of commercial software out there which will not allow for any drill down functionality, and that makes for very user unfriendly software, even for us accountants. I don’t know why it’s so difficult for us to be able to double click on our statements and reports, and have either the relevant ledger accounts pop up or a simple list of the items that are making up that number. Sometimes a typical, or what we may think of as typical, entry in a software does NOT come up with the desired result on the balance sheet or P & L. That simply means that the user doesn’t think the exact same way as the person who designed the software, and that’s a problem, because most johnnys who design the software have little or nothing to do with accounting. By the way, QuickBooks, Peachtree and Microsoft Office Accounting all provide for this. I’m not sure about MYOB, but I assure, SAGE should get fined for something as stupid as this. They’ve even bought Peachtree, but they refuse to learn from it.

2. Here’s what these software providers need to decipher: are you making the software for small business owners or are you making it for accountants? This question is key before we can tackle the ever famous ‘accounting for prepayments’ issue. Up to this day, all major small business accounting software does half and half. Take SAGE for instance, they have an option to account for prepayments, but it’s so horrid and hard to figure out that any normal person will be pulling his/her hair out to figure out how it works. Most irritating is the fact that you can’t see the effect of your prepayment entry until you decide to go in and CLOSE the month. So, if you were to look at your statements before actually closing the month to make sure there weren’t any mistakes, you’re screwed. Worst yet, if this is a tactic for security and internal controls in a business, it fails miserably. You won’t know what you’ve until you close the month, and then you’ll have to make a bunch of adjusting entries to fix up anything you may have screwed up. That will only cause more confusion for someone trying to pick up on erroneous accounting behavior.

It would, in fact, be simpler to add a prepayment section to the payment area, and simply ask the user how much of the amount being paid is prepayment, and then the appropriate entries could be made into the GL or PL accordingly automatically. Of course, that’s if you’re designing the software for the small business owner.

On the other hand, if you’re making it for accountants, and you’re dumb enough to not be able to figure out how to account for it automatically, why don’t you simply state that in the How-tos instead of giving a long lecture full of bullshit in Help Menu, and simply let us accountants make journal entries to account for prepayments. Well, it’s not like the software is stopping you. But that’s how I account for prepayments anyway. The prepayment options are buggy and sketchy at best, and quite frankly, even if you figure them out, they won’t work properly in Peachtree, QuickBooks, or SAGE. Microsoft has made a bit of an effort to incorporate prepayments into their new software, and it’s a decent attempt. However, it could require some further cleaning up.

3. Multiple Locations. I’ve deployed both Peachtree and QuickBooks over multiple locations. I haven’t even tried with SAGE, and given my low opinion of it thus far, I fear the day a client or an employer will ask me to do this. Of course, deploying over a network or over the internet is not as useful as one would assume. If you actually wanted to keep track of two locations from the two different locations, and have the software update everything automatically, wouldn’t that just be great.

The problems with deploying software like Peachtree and QuickBooks over a network or VPN are simple. The number of simultaneous user is limited (for many functions to one user only), and if you’re keeping track of say, multiple warehouses with equipment, your inventory management will get really screwed up. You’ll have to keep track of the same inventory different locations with different codes, and if you really want a clear report, you’ll have to export the report into excel, bunch and merge some cells, and then you’ll finally come up with the report you want. So, basically, support for multiple locations means:

a. The ability to deploy the same software with the SAME data set relevant to the specific location;

b. The ability to have multiple users logged on simultaneously; and

c. The ability to manage the books of multiple locations separately and the business as a whole.

Now we’re asking for something as complex as SAP over here, but the concept is similar. And mind you, it’s not very complex. WebERP provides an example of a software that already does this, and even though some old school executives might still believe there are possible security breaches to storing information online, that’s a rather weak argument in today’s day and age.

I took apart WebERP with another colleague of mine to customize a multiple location accounting system for a client. It was about 70% complete, but as you know with clients in Dubai, they didn’t want to pay up as per the agreement, so we had to abandon the project. A web based solution is the SIMPLEST way to manage a multiple location accounting software. A web based solution that uses AJAX will totally eliminate the need for accounting software like SAGE or Peachtree. Writing such a software is on my list of things to do. But I wouldn’t hold me to that.

4. Viewing Vendor/Customer Statements. This wish is simply more of a musing, although I think it will be a useful musing. How is that we can (or could until the 2006 versions) only print these statements. I mean, how hard is it for QuickBooks or Peachtree to actually come up with another screen to display a customer or vendor statement before printing it out. It’s either the product of very lazy project management or careless programming. Either way, VIEWING before PRINTING is not only more convenient; it is also more environment-friendly.

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Enough debunking of accounting software. Please feel free to add features to this wishlist as you deem fit. Mind you, I think most other things are already available in these accounting packages. It would be nice to be able to manage your bank account directly from the accounting software too, but let’s fact it, that’s not going to happen. Part TWO of this article will discuss which small business software is superior for small businesses, both from the accountants the business owner’s point of view.