Every year about this time, I see too many accounting systems that don't work... QuickBooks and PeachTree and Microsoft Small Business Accounting programs that don't do what their small business users want or need.
Sometimes, people know their accounting systems don't work. And they don't care. But, sadly, sometimes, the struggling small business person doesn't even know his or her system isn't working until it's too late. Until the business fails because the owners don't realize they aren't making money.
Fortunately, perhaps surprisingly, you can usually tell pretty quickly whether an accounting system like QuickBooks, Peachtree Accounting, or Microsoft Small Business Accounting works the way it should. Just look for one or more of the following four symptoms.
Symptom #1: You Don't Know How Much Cash You Have Right Now
Any accounting system, run right, tells you how much money you have in your bank accounts. To the penny. Accordingly, if you can't look at a bank register in your accounting system and see how much money you have, sorry, your system doesn't work.
Symptom #2: You Don't Know How Much Money You Made Last Week, Month or Year
Here's another symptom of things gone bad. With just a few clicks of your mouse, you should be able to produce an accounting report called a profit and loss statement that tells you whether you made money last week, last month, last year, and so on.
A profit and loss statement simply summarizes the revenues and expenses of a business for an interval of time and then shows the difference between these subtotals--which is your profit or loss.
Now, this instant access to profit and loss information wasn't always the case. In the past, people often waited until the end of the month or even the end of the quarter to send off their financial records to an accountant or bookkeeper. A few hours or a few days later, the bean counter produced a financial statement that showed whether or not the business had made money.
No more. If you're doing your accounting right using something like QuickBooks, you should almost always be able to see whether you're making money or not. And at almost any moment in time. That's the point.
Symptom #3: You See Goofy Numbers on Your Balance Sheet
The first two symptoms are pretty obvious, I guess, but the third symptom is sometimes more subtle...
Turns out you can sometimes produce a profit and loss statement that sort of looks right--even if it sometimes isn't. If you can produce a balance sheet that doesn't have goofy numbers, though, that's more telling. You can't fake a balance sheet. Accordingly, carefully check out your balance sheet report.
A balance sheet lists assets, liabilities and owner funds invested or reinvested. If you don't see goofy numbers on your balance sheet and your profit and loss statement looks right, you accounting system is probably capturing data in the right way.
Goofy balance sheet numbers include things like a big negative bank account balance, clearly incorrect accounts receivable or accounts payable balances, and any other accounts with strange names or balances
Sometimes, people know their accounting systems don't work. And they don't care. But, sadly, sometimes, the struggling small business person doesn't even know his or her system isn't working until it's too late. Until the business fails because the owners don't realize they aren't making money.
Fortunately, perhaps surprisingly, you can usually tell pretty quickly whether an accounting system like QuickBooks, Peachtree Accounting, or Microsoft Small Business Accounting works the way it should. Just look for one or more of the following four symptoms.
Symptom #1: You Don't Know How Much Cash You Have Right Now
Any accounting system, run right, tells you how much money you have in your bank accounts. To the penny. Accordingly, if you can't look at a bank register in your accounting system and see how much money you have, sorry, your system doesn't work.
Symptom #2: You Don't Know How Much Money You Made Last Week, Month or Year
Here's another symptom of things gone bad. With just a few clicks of your mouse, you should be able to produce an accounting report called a profit and loss statement that tells you whether you made money last week, last month, last year, and so on.
A profit and loss statement simply summarizes the revenues and expenses of a business for an interval of time and then shows the difference between these subtotals--which is your profit or loss.
Now, this instant access to profit and loss information wasn't always the case. In the past, people often waited until the end of the month or even the end of the quarter to send off their financial records to an accountant or bookkeeper. A few hours or a few days later, the bean counter produced a financial statement that showed whether or not the business had made money.
No more. If you're doing your accounting right using something like QuickBooks, you should almost always be able to see whether you're making money or not. And at almost any moment in time. That's the point.
Symptom #3: You See Goofy Numbers on Your Balance Sheet
The first two symptoms are pretty obvious, I guess, but the third symptom is sometimes more subtle...
Turns out you can sometimes produce a profit and loss statement that sort of looks right--even if it sometimes isn't. If you can produce a balance sheet that doesn't have goofy numbers, though, that's more telling. You can't fake a balance sheet. Accordingly, carefully check out your balance sheet report.
A balance sheet lists assets, liabilities and owner funds invested or reinvested. If you don't see goofy numbers on your balance sheet and your profit and loss statement looks right, you accounting system is probably capturing data in the right way.
Goofy balance sheet numbers include things like a big negative bank account balance, clearly incorrect accounts receivable or accounts payable balances, and any other accounts with strange names or balances
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