It's Easy to get your Accounting Software Setup
A surprising number of companies just use their accounting software only for daily operations, like processing orders or paying vendors, and leave it to their accountants to prepare their financial statements.
In one sense, I could see why business owners do that. They don't want their time taken up doing all the grunt accounting work when they want to put more bodies on sales and customer service.
Yet it also doesn't make sense in that this is the reason you have accounting software in the first place. Activity flows from a ledger, like Accounts Receivable or Payroll, which then creates Journal Entries for the General Ledger. You should be able to print out a Balance Sheet and Income Statement at any time in the present or past and get accurate Financials.
I've seen many business owners who need current financial statements to get a bank loan, or buy a house, or some other need and have to wait months until the accountant can finally prepare them.
Runing your business without having up to date financials or key metrics is like trying to fly a plane blindfolded. You really are at a disadvantage.
For those businesses wanting to make a change and bring financial reporting in house, the good news is that it's not too complicated. Yes, having your accountant help you get it setup will save you a lot of time. But once the software is all setup, you won't really need them except for the occasional journal entry,
like recording Depreciation.
Step 1: Setup your Chart of Accounts
First you will need to setup a list of all Accounts, or categories of transactions, that you will receive funds in the course of your year. Examples are Cash, Inventory, Payables, Debts, etc. While you can use any numbers you want as Accounts, traditionally Accountants use the same series of numbers. Accounts that start with a "1" are usually cash and asset accounts, accounts that start with a "2" are usually liability accounts, etc.
Your accounting software, though, will likely come with a pre-defined list of accounts that you can use.
Here is a sample list of account numbers you can use:
Chart of Accounts: The Ultimate Guide with examples | Polaris Tax & Accounting (polaristaxandaccounting.com)
It can get a little more complex when you use multiple "segments." For example, you may want to track Office Expense by department, not just overall, so you would setup these "segments": "100" for Management, "200" for "HR" and "300" for Accounting. If your Office Expense account is "710" then you will have 3 accounts:
710-100 (Office Expense - Management)
710-200 (Office Expense - HR)
710-300 (Office Expense - Accounting)
Then you have additional segments for different Divisions, Branches or Locations, or whatever. For example, AccountMate/SQL (our flagship Accounting package we sell) offers up to 9 different segments you can create in your Chart of Accounts.
Step 2: Setup your Program Defaults
Now that you have your Accounts setup, your accounting package will want to know what are the default account numbers it should use for various transactions. For example, when you make a sale, what should be the Sales Revenue account? What is the Cash account? You don't want to have to be asked to provide this every time, it would make your system unbearably slow.
Step 3: Setup your Beginning Values
Now that your accounts are in and defaults are setup, we need to enter the default values for the various Asset, Liability and Equity accounts. At the time you are switching to the software, what is your Cash balance? How much debt do you have? What is the value of your building less Accumulated D
The Revenue and Expense account values don't need to be entered at the beginning of a period, since their values flow to Net Income at the close of each period and reset to 0.
There you go! Now all you need to do is have your accountant make the occasional journal entry during the year, such as annual or monthly depreciation expense.
You should be able to print out now your Balance Sheet, Income Statement, Statement of Working Capital and any other statements any time you want and they should be up to date. Of course it would be wise to have your Accountant look at them and sign off that they were prepared right, but if you followed all the steps to this point, you should be in good shape.
Contact Chicago Business Software at 312-226-0105 if you have any additional questions.