In this chapter we’ll look at some of the alternative methods of bookkeeping. These include:

• the use of computerised systems
• the use of preprinted accounting books.

COMPUTERISED BOOKKEEPING

Over the past few years there has been a significant improvement in bookkeeping software available for the small to medium-sized business. With the invention of the IBM compatible personal computer or PC there was a standard platform for running computer programs and the first affordable bookkeeping programs became generally available.

These programs are able to undertake all your bookkeeping and will also allow you to ‘do the VAT’, prepare management reports and prepare the final year end accounts. Some programs will calculate the wages for your employees and also keep track of your stock.

With bookkeeping you have to be 100% accurate. On early programs it was not possible to change an entry once it had been made. This was sold as a security feature because, having balanced a particular account, it could not subsequently be altered. The idea was sound but unfortunately it ignored the human factor: we all make mistakes! Under that system it became difficult to correct such errors. If you had wrongly entered a receipt as £96.39 instead of £69.39 it was necessary to enter a payment of £27.00 to correct matters. Not only was this messy and awkward but it was also difficult to check the entries at a later date.

Fortunately most programs today include a ‘delete transaction’ or an ‘Oops’ button to remove erroneous entries. Even with this more friendly approach it is still necessary to exercise care when using computer bookkeeping. Unfortunately there is a danger that because the printout looks neat, you feel it must be right. This is not necessarily the case and indeed some of the worst bookkeeping is undertaken using computers. Any computer program is only as good as the data input and the old maxim ‘Rubbish in = Rubbish out’ certainly applies to bookkeeping packages.

Some observations on the introduction of a computerised bookkeeping system

‘If it had not been for the help that I had from my accountant it would have been in the bin long ago.’

‘The computer company’s idea of training is to go on a training course for one day. I think that if I sat in a class with a lot of others I would perhaps pick up some of the basics, but most would go in one ear and out the other! It would seem much better to tackle problems as they arise: that way it is at a better pace and you understand the answer. Of course that means that you have to find someone to explain.’

‘I think I understand it now. The screen is like a piece of paper: you just have to get used to thinking of it in that way.’

CHOOSING THE SOFTWARE

First you must consider what you want your system to achieve and also to some extent the nature of the equipment available to you. Most bookkeeping software used by small businesses runs using a Windows operating system although there are different versions of Windows available. Windows is a graphical interface which provides an intuitive and efficient work environment for your personal computer. The majority of users of small business systems will use Windows although there will be a few who will use Linux or Unix. It is to a degree a matter of personal choice, although if you purchase a new computer it is likely to come with Windows ME or one of the other versions of Windows.

If you have an old computer it may be painfully slow at printing any reports. If this is the case then you should consider updating your computer. With many machines now available for under £600 an upgrade has become more attractive, and remember that not only will it run your accounts software quicker: you will also be able to play some of those super new games!

You should also consider what you want your program to do. Different programs have different strengths and weaknesses. For example, do you want to incorporate a stock control system so that you can always know exactly what goods you have in stock?

Finally, you should consider who is going to use the program and how many different businesses you need to maintain records for. If you are in a busy office you may want to select a program that will allow more than one person to input information at the same time. For example, you may want a clerk in the purchasing department to be able to work on the purchase ledger whilst the sales ledger clerk is preparing sales invoices using the system. For most small businesses this will not be important but it is not infrequent for such entrepreneurs to have more than one business. A multi-company option may therefore be useful.

Features to look for

• Nominal ledger. The ledger where all the assets, liabilities, income and expenditure of the business are recorded. (See Chapter 5 for more details.)
• Sales ledger. The record of who owes money to the business. The computer will also be able to prepare statements to those customers and if necessary many systems will allow the preparation of standard letters chasing the debtors for payment.
• Invoicing. The ability to prepare sales invoices using the bookkeeping software. This has the advantage that the invoices are automatically entered into the sales ledger without the need to re-enter them.
• Stock control. This is a system incorporated into the program in order to keep track of your stock. If you were a greengrocer then you would be unlikely to use stock control to find out how many cabbages you had left. However, if you were a builders merchant you may use stock control to save you counting the number of lengths of drain pipe in stock. As you purchase items they are added to the record of stock whilst preparing a sales invoice automatically reduces the stock. In this manner you can quickly establish if an item is available and also the total value of the stock on hand. In addition by setting standard profit margins you can automatically update the selling price of goods based on the purchase price so that your selling price is always up to date.
• Purchase ledger. The record of who your business owes money to. The system will normally also be able to produce remittance advice forms.
• Order processing. This system allows you to record orders from customers. It will allow the preparation of quotations, pro-forma invoices and the reservation of stock so that the items will be available at the appropriate time. You can then track them through, automatically producing the despatch note and invoice at the appropriate time.
• Job costing. Allows you to work out the cost of a particular job that you are undertaking for a customer. As you enter the components used the computer calculates the cost of the items and the stock record is automatically updated. Job costing can be useful in the calculation of invoices to customers.
• Payroll. Some programs will support the calculation of wages for your employees or will link to a separate program that will carry out this function. By using integrated or linked software it avoids the need to re-enter the wages analysis and the appropriate accounts in the nominal ledger are automatically updated.
• Multi company. This means that the program can be used to main tain the records of more than one business on the same computer.
• Multi user. If you have a larger business with a computer network then several people may want access to the accounting software at the same time. For example, the sales department may want to be preparing invoices to customers whilst the wages department is preparing the wages and the accounts department are preparing management accounts. If this is the case then you will need a program with multi-user access.
• Batch or real time input. On some programs transactions such as purchase invoices are entered in batches. This can have advantages in that if the documents are pre-listed you have a total to balance to so that you know that the values have been entered correctly. Often the batch remains open for the current month and it is only at the end of the month that the totals are transferred to the nominal ledger. The disadvantage of such a system is that it is not possible to obtain meaningful interim reports until the batch is processed at the end of the month. By contrast on a ‘real time’ system each invoice is posted to the nominal ledger as it is entered and although this means that there are more ledger entries (made automatically) it means that the ledger is always up to date.
• Password protection. Most systems allow some sort of password protection. On some software this is a global password which prevents unauthorised users gaining access to the program. However, a better arrangement is to have different passwords for each user. This allows the supervisor (boss) to allow each user different access rights. Thus the sales department may have access to the sales programs but be unable to gain details from the nominal ledger or purchase ledger.
• Correction capability. As mentioned previously, it makes the software considerably more user friendly if you are able to correct errors. We are all human and inclined to make the occasional error and to be able to put matters right quickly and easily vastly improves the usability of the software. Look for this feature when choosing software.
• Flexible coding of nominal ledger. Just as all people are different so too all businesses are different. For this reason the requirements of the software cannot be standardised. The nominal ledger accounts required for a building contractor will differ from those of a grocer’s shop. You should make sure that the nominal ledger headings can be tailored to your needs.
• Departmental analysis. If your business has different branches or departments then departmental analysis may be important to you. By using departmental analysis you can, for example, look at the results for a particular branch or for the business as a whole. Management reports can also be prepared by branch or department.
• VAT accounting. As mentioned in Chapter 3, smaller businesses have the option of using cash accounting for VAT. Not all accounting packages support cash accounting but if you are considering its use then ensure that it is available on your chosen software.
• Flexibility of reporting. On some systems it is only possible to obtain a detailed report of transactions during the current month. At the end of each month after you have printed the reports the system is closed down and only the totals are carried forward to the next accounting period. Other systems allow the data for earlier periods to be locked to prevent changes but still allow the user to obtain reports for earlier months or even from the previous year. This is particularly useful: somehow you can never find the report you want and it is much easier to just print a new copy!
• Format of reports. On some software packages the format of the reports is fixed: if you want information presented in some other way then hard luck! On the better programs there is a report format writer which will allow you to tailor the reports to your needs.
• Bank reconciliations. Most programs come with a bank reconciliation option that will allow you to electronically tick off the items as they appear on the bank statements – it certainly makes checking the bank statement a lot easier.
• Technical support. Technical support is important because things never go quite as planned. Technical support should not be used to solve bookkeeping queries: they should be addressed to your accountant. The support service is for when things go wrong with the program (or errors caused by the way you are using the program). Hopefully you will not have to use the service often but it is comforting to know that it is there if you need it.
• Operating system. Last but certainly not least is the choice of operating system. Some software will only run under a particular version of Windows. The choice of software may therefore be dependent upon the operating system that you have available.

Ensuring you can obtain all the reports you will need

Unfortunately some computerised bookkeeping software is only suitable for home accounting: it lacks the functionality and reporting demands needed by business. For example, some systems are unable to produce an adequate audit trail (list of transactions) needed to keep the VATman happy. When choosing a bookkeeping package don’t be lulled into a sense of false security by the sales talk or literature. You should see the program running and try entering a few dummy transactions yourself to prove that it really does do what you expected. You will then start to get the feel of the program and you will sense if it will complement the way that you work. Some packages such as TAS Books give you a 60-day money back guarantee on the software so that if you don’t like it having tried it you can return it for a refund of the purchase price.

IMPLEMENTING COMPUTERISATION

With any accounting system it is necessary to plan its implementation but this is particularly important with a computerised system. Often a bad decision at the planning stage can have consequences for years to come! These are the steps to take:

• Decide what is to be computerised – are you computerising the cash book, ledgers, wages and stock control?
• Decide how best to work – do you feel that batch entry is best for you or is the ability to obtain interim reports important? Whichever way you tackle the input it is best to have an input document from which to work. Although it is possible to enter the details directly from the cheque stubs and paying-in book stubs, it is much easier to use a handwritten summary book or sheet to make the initial entry. This makes it easy to see where you are up to so that items are neither omitted nor duplicated.
• Having decided what you want to do it is time to choose the software. Study the list of features above and write down which you need. Then, when you speak to the salesperson you can ensure that the software does what you want. But don’t just take the salesperson’s word for it – ask them to show you.
• Having bought your software don’t rush to enter the transactions. You have some more choices to make first. Most software comes with a ‘chart of accounts’ or list of nominal ledger headings. These headings may not be appropriate to your business and you may wish to change some or to add some more. If you are not already familiar with the preparation of year end accounts then you should read Chapter 8 before continuing.

If you study the list of nominal accounts you will probably see that like items have been grouped together. So, for example, all the overhead expenses (heat and light, rent, rates, insurance, motor expenses) are gathered together in a block. This is because it simplifies the production of accounts reports and it is more logical in this form. If you need to add any new headings then you should try to follow this idea of grouping like items. Thus if you were running a garage and the Sales account had been allocated code 3200 you might add Vehicle Sales at 3210, Forecourt Sales at 3220 and Workshop Sales at 3230.

You should also be aware that the computer system needs to know which accounts are used for specific purposes and that certain codes may have been designated to these accounts. The accounts include:

• the default bank account
• the nominal suspense account
• the retained earnings account
• the sales (debtors) control account
• the purchase (creditors) control account.

If you alter the nominal structure relating to any of these accounts then you must also alter the nominal interface table to point to the new accounts.

• You should decide upon the coding structure for your sales and purchase ledgers. It is probably best to use an alphanumeric such as T162 for Taylor although a pure numeric code could be used. Make sure that you leave yourself enough space for a logical expansion of the number of accounts.
• You will need to design your management reports. As a minimum these will include a Profit & Loss Account and a Balance Sheet but you may wish to add further reports such as sales analysis reports. If necessary you can add to or amend these reports later.

Up and running

Having gone through the above steps you are ready to enter the transactions. Follow the instructions in the manual carefully: that way you will get the best from the program by learning the correct way to make the entries and also the shortcut keys that make the input of transactions so much quicker.

Don’t forget to make backup copies of your data at least weekly: more frequently if there are a lot of transactions being processed. Unfortunately you never know when your computer might fail or when you may become a victim of theft but at least if you have backup copies of the information (preferably kept at another address) then at least it should be a relatively easy task to get up and running again.

The backup copy can be made by using one of the following:

• 3½ inch floppy disks – if the data is compact and not too extensive.
• Zip disks which hold up to 100 MB of data (the equivalent of 70 floppy disks). You will need a special drive to record the disks and to restore the information when needed.
• CDR disks – these can hold up to about 700 MB of data which should be more than enough for most needs. They need a special drive to write the information to the CD but it can be restored onto any computer that has an ordinary CD drive. The disks are ‘write once’ which means that they cannot be reused but you can often update several batches of information onto one disk. The disks cost from about 30p each. You can also get CDRW disks which are reusable but they are more expensive.

It is a good idea when using reusable media such as floppy disks or zip disks to adopt the grandfather, father, son approach (see Figure 33). This means that at any time, as well as having the disk in the machine you

have two earlier versions of your data on the backup disks. The first time you record your data you use the grandfather disk. Next time you use the father disk and the third time you backup you use the son disk. You will see that when you prepare this third backup you already have two earlier versions of your data. When you have used all three sets of disks you start again by reusing the grandfather disk. Of course at this stage you still have the father and the son disks containing earlier data. This process then continues using each set of disks in turn.

Of course you need to keep some record of where you are up to with the backup disks: a simple paper record kept with the disks recording which set you used for each backup with the date should suffice.

With CDRs this approach to the backup does not apply although it is good practice to keep several generations of backup just in case.

By carrying out regular backups of your data then even if the backup is not fully up to date there will be comparatively little data that will need to be re-entered should the worst happen.

At the end of each month you may have to carry out a closedown routine. This is particularly so if there is batch processing involved: real time systems let you run on but allow you to lock the earlier accounting period when you are sure that all transactions have been entered.

When you reach the year end there is normally a further routine to run to transfer the balances from the revenue accounts to the Profit & Loss Account and then to zeroise the account balances. Chapter 8 gives more detail of the double entry that is taking place. Just remember that on many systems once the year end routine has been run you will not be able to print any further reports from the old period. Make sure that you have printed all the necessary reports first and it is also a good idea to make a backup copy of your accounting data.

You should note that the Inland Revenue require you to keep paper records of the transactions – not just a computer disk.

There are many suppliers of computerised accountancy programs. One of the most popular is Sage who produce a range of programs to suit most types of business. Some of the programs are DOS based whilst others run under Windows. Another package, TAS Books was the first entry-level accounts software to receive accreditation by the Institute of Chartered Accountants in England and Wales.

There is further information concerning computer matters and contacts in Appendix 2.

USING A PREPRINTED ACCOUNTING BOOK

There are several variations of this system on the market but perhaps the best known is the Simplex D cash book published by George Vyner Ltd. It has a separate page for each week, and includes both bank and cash transactions (see Figure 34). It also contains useful notes for guidance and worked examples to help you.

If you look at the weekly sheet (Figure 34) you will see there is space to record your daily takings at the top left of the page. You can also put in details of miscellaneous receipts such as insurance claims, or capital introduced by the proprietor.

Columns 4 and 5 on the top right of the page record the money you pay into the bank. Below them are columns 8 and 9 which you can use to record payments for items other than stock. These have preprinted headings for the commonest types of expenses but some blank lines are included in case you want to add further details for your own particular business.

You can see, too, that this section splits expenditure between that paid by cash and that paid by cheque. This theme is also used to record the payments for business stock in columns 6 and 7.

At the foot of the page there are spaces where you can summarise both your bank and cash transactions for the week. It’s obviously a good idea to make sure that your bank transactions agree with your bank statement and that the cash report agrees with the cash in hand. In practice many traders don’t bother to write up this section of the book! This is unfortunate; unless these reports are balanced the trader can’t check that everything has been correctly recorded and that no transactions are missed out.

Recording the VAT transactions

If your business is registered for VAT you will also need a separate book to record VAT transactions. There is no way of keeping VAT records in the Simplex D cash book. The Simplex D book is particularly suited to smaller traders (especially shopkeepers) who don’t allow their customers any credit. Although it may be limited in scope, it can still form the basis of a simple and reliable system of bookkeeping. The books are available from most stationers, or direct from George Vyner Ltd, telephone: Holmfirth (01484) 685221.

SUMMARY

• A computerised system may save you some time and provide you with useful management information but it must be used with discipline and care – just because it looks good does not mean that it is right.
• If you don’t need any ledgers and want a simple alternative to the standard system of bookkeeping, consider using a preprinted accounting book.