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How Do I Track Income and Expenses?

How Do I Track Income and Expenses?
By: Stephen L. Nelson, CPA

Tracking Income

You track business income using the check register or account register. All you need to do is use a category that counts income. To do this, record a deposit in the usual way and then categorize the deposit as sales, revenue, or sales income. Note that each deposit transaction records a single sale. Note, too, that the Category field for each transaction records the category as Sales.

The one shortcoming when you use Money to record sales in the manner just described is that you count sales only at the point of deposit. You don't count sales when you provide the goods or services. This means you are using a cash-basis accounting convention for sales revenue. In many cases that works just fine, but you should be aware that this is an imprecise method of measuring your sales.
Another problem with cash-basis accounting is that you can't track those amounts for which you have invoiced customers but for which you haven't been paid. These amounts, commonly called accounts receivables, can be very significant. A fundamental record-keeping task a small business should regularly undertake is to review these accounts receivables and follow up on any of them that are past due.

Tracking Expenses

To track expenses using Money, all you need to do is use an appropriate expense category when you record an expense. Note that the Category field
records each of these transactions as an expense.

As in the case with income transactions, the problem with using this cash-basis approach is that expenses get recorded only when you enter them in the register. This approach may work, but it has shortcomings. For example, by recording bills and expenses only when you write a check, you don't keep a record of the outstanding bills you owe your vendor.

What should I do if I outgrow the Money program?

If your business grows in either size or complexity, you will eventually want to move up to another small business accounting program--something that provides a richer set of tools and features.
Fortunately, you have many good choices for small business accounting software. The most popular program is QuickBooks, or its big brother, QuickBooks Pro. The QuickBooks programs are full-featured, small business accounting programs, which means they do just about everything that a small business needs. Both are also quite easy to use. If the QuickBooks programs have a weakness, it is that their ease-of-use also makes it easy to make accounting errors and to erroneously change data.
Another more powerful and more complicated program is Peachtree Complete
Accounting. The Peachtree Complete Accounting program is probably the favorite of certified public accountants simply because the program forces you to adhere to a more rigorous, methodical, and safe level of financial record keeping. Unfortunately, and this is really the flip side of its robustness, the Peachtree Complete Accounting software is also more difficult to use.

The decision to use one or the other of these programs depends largely on the accounting skills of the person using the package. If you do not have much accounting training, you would be better off with one of the QuickBooks programs. If you have more accounting knowledge, and you have the time to be trained, you would be happier in the long run using Peachtree Complete Accounting.

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About the Author: Stephen L. Nelson, CPA. CPA Stephen L. Nelson is the author of do it yourself kits for Incorporating in Michigan, Michgam S corporation, and Michigan limited liability company.

NOTICE: E.&O.E., Legal disclaimer ( 3-Oct-2017) E.&O.E.

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