Definition: A business's bookkeeping system that tracks the money coming in vs.
the money going out
Aside from every business owner's inherent desire to stay in
business, there are two other key reasons to set up a good
bookkeeping system:
1. It's legally required.
2. Bookkeeping records are an excellent business management
tool.
Of course, staying out of jail is a good thing. And a good basic
accounting system will provide useful financial information that
will enable you to run your business proactively rather than
reactively when it comes to important financial decisions.
While many businesses still operate using a manual (checkbook
and receipts) bookkeeping system, it's generally not a good idea to
use this type of system. It's far more efficient to go with an
automated system, and there are now many bookkeeping software
packages on the market that won't break your wallet.
Financially complex businesses, such as a manufacturing concern,
can buy industry-specific software, but there also are many generic
programs available that would suffice for most businesses.
A good accounting system meets three criteria. First, it's
accurate; the numbers must be right. Automation will help ensure
accuracy, but it won't guarantee it. Bookkeeping numbers should be
checked and rechecked to maintain accuracy.
Second, it's relevant. The system provides information that's
required and needed. The law requires that certain pieces of
financial information be tracked for tax-reporting purposes.
Obviously, these items (which comprise a basic income statement and
balance sheet) must be measured and tracked. However, it's equally
important to include information that you'll need to run your
business successfully.
Third, a good accounting system is user-friendly. It shouldn't
require a CPA to operate and interpret. Most of the Windows-based
bookkeeping software packages on the market today are pretty
user-friendly. They include tutorials and help screens that walk
you through the programs. Find one with which you are comfortable,
even if it doesn't have some of the bells and whistles of more
complicated programs.