A Small Business Accounting Program

A small business accounting program should perform three tasks: Track revenues and expenses, create business forms, and keep detailed records of other assets and liabilities. 

Tracking revenues and expenses

Tracking a business's income and expenses is actually the most important task of an accounting system. If you own or run a small business, you obviously need a tool to measure your revenue and cash flow.

Although checkbook programs like Quicken and Microsoft Money can not do much more than keep a checkbook, you can also record a business's financial data directly from a checkbook. To do this, you simply assign deposits to a specific income category. And when you write a check or make another withdrawal, you assign expenses to a specific expense category.

One problem with using a checkbook program, however, is that with a checkbook program you are implicitly using cash-based accounting to record your income and expenses. Cash-based accounting counts receipts when you receive a deposit and expenses when you write a check.

Cash-based accounting is easy to understand, and that means you'll make fewer mistakes when using it. However, for more complicated businesses, cash-based accounting is generally too imprecise. For example, if you work with inventory in your business, cash-based accounting is not very accurate - and the tax authorities will not let you use it. 

In other circumstances, too, cash basis accounting leads to serious and generally unacceptable errors in accuracy. For example, if you frequently receive money before you actually earn it, or if you frequently incur expenses long before you actually have to pay them, you need to use a more sophisticated accounting program than a checkbook program.

Generate business forms

The second task that a small business accounting program should help you with is generating business forms. The most common business form is simply a check. Any checkbook program will help you with this. Other business forms that small businesses usually need to generate are invoices, credit memos, monthly statements, purchase orders, etc.

If you have a small business with very simple form requirements - perhaps you only need checks - then a checkbook program can work very well for you.

However, if you have extensive or complicated business form requirements, a small business accounting package with more features, such as Intuit's QuickBooks, Peachtree's Complete Accounting, or Microsoft Small Business Accounting, may be better suited for you.

If you create more complicated forms, but create those other forms with a word processor, then a checkbook program may still be for you.

Detailed records for other assets and liabilities 

The third task a small business accounting program should help you with is keeping detailed records of your major assets and liabilities. With a checkbook program, you can keep detailed records of cash, and for some businesses, this is the most important asset. But many small businesses have other important assets and liabilities they need to track, such as accounts receivable, inventory, and accounts payable to suppliers.

Whether or not a particular software program's accounting tools can adequately track assets and liabilities depends on the situation. However, no small business accounting program can do everything you need. Any accounting program that offers an extensive list of features inherently becomes a challenge to use. Moving to accrual accounting, for example, makes financial accounting even more complex, and keeping detailed records of inventory is another layer.

For these reasons, even if a particular program can not do everything you need, it may be best to use the program - and then just live with its shortcomings.