Small Business Accounting Systems

How to set up a system
to take care of all your basic accounting needs.

Small business accounting systems are relatively easy to set up, especially if you're just setting up a manual accounting system.

If you're setting up a computerized system, it's relatively easy, too, but there's a few extra steps.

I have set up many small business accounting systems, both manual and computerized, and even converted a manual system into a computerized system, so I will help guide you thru the steps to get you started.

If you're just opening a small business, you'll be starting from scratch. If you've already got a business going, but your records aren't what you'd like them to be, you can always convert what you've got into a system that will work better for you.

So, let's get started!

What do you need to set up your small business accounting system?

2. You will need a cash disbursements journal to track your expenses and other purchases. In a pinch, your checkbook journal may work, but it's best to set up a separate journal, be it in Excel or in a pad of 13-column accounting paper. For more on this, see my page on the cash disbursements journal.

3. You will need a cash receipts journal, to track your receipts for sales collected. A pile of deposit slips just doesn't cut it when you want to know which customer you made the most sales to. You can set up a simple Excel spreadsheet or use that same accounting 13-column pad you may be using for your cash disbursements journal. For more on this see my page on the cash receipts journal.

Just a note, accounting journals will automatically generate in a computerized accounting system. When you prepare a check or post a deposit, these are automatically added to the appropriate accounting journal.

4. Payroll files. Do you have or are you planning to have employees? Will you do payroll yourself, or hire a payroll provider, such as ADP or Paychex? Either way, you should set up a file for each employee. Go here for a more complete discussion on payroll, a discussion of payroll taxes, or a simple discussion on calculating your own payroll.

5. For you computer users:
a. You will need to set up your company in your accounting software. Look for a "company" tab. Fill in your company name, address, federal i.d. number, etc.
b. You will also need to set up your customers and vendors into the system. Fill in name, address, terms (how often you pay...if you pay in 30 days, for example, use net 30), etc. for your customers and vendors. Remember, you can always add new ones later on.
c. Set up your employees as well. Fill in name, address, taxing information, etc.
d. You can individualize your invoices in most software packages. You can add your logo, change fields around or eliminate some if you wish.

6. Set up an initial Chart of Accounts. This is a list of Accounting Ledger Accounts you will be using, such as Cash, Accounts Receivable, Inventory, Equipment, Income, Rent, Insurance, Supplies, and on and on. For more on this, check out my Chart of Accounts page.

7. Put together an initial Balance Sheet. If you are just opening a small business, you won't have much. Maybe you got a loan from your cousin-in-law for $5000, and bought $1500 in equipment.

Here's what you'd have:

Assets:
Cash of $3500
Equipment for $1500

Liabilities:
Note Payable of $5000

Pretty simple, but this will be the beginning of your enterprise. File this for later reference. Also, if you're preparing a small business plan, you will need this.

For more information, see my page on the Balance Sheet.

8. Set up a filing system. You should have what I call Current Files, for things you need access to regularly, and Reference Files, for things you need, but don't need often. See my page on setting up a Filing System.

9. Invoices - in a manual small business accounting system, you will need to buy ready made invoices, or make your own with Microsoft Word or Publisher, or even go to a print shop and have some made for you. You may also want Purchase Orders, if you plan on using them.

There you have the main steps for setting up small business accounting systems. After these steps you will be able to buy materials and pay the rent, invoice your customers, accept payments and deposit the monies into your business account. You will then enter the information for your payments to your cash disbursements journal, and your deposits to your cash receipts journal. This will give you the information you need to prepare an Income Statement (a.k.a. a Profit and Loss Statement) at month end to see how your small business is doing.

Click here for a discussion on the Income Statement.

I hope this information on small business accounting systems has been helpful!

If you have any questions or are looking for information you can't find on this site, feel free to email me. Use my handy Contact Page.

Return to my Home Page for more accounting help!