Certified Public Accountant, PC
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Setting Up Accounting Systems
For any business to succeed, the owner needs to know
what is going on. An accounting system is important to establish the
financial component of that information. A well-designed system
provides you with both the information you need and the information to
satisfy government reporting requirements.
Because my accounting practice has "grown up" using Macintosh tm computers, I am familiar both with Macintosh tm and Windows tm operating systems. In fact, now I'm running Windows software on my Intel Macintosh. Today, there are a number of computer programs suitable for the small business that will provide both sets of information. I am particularly familiar with two of them MYOB, and QuickBooks. I am a member of both the the MYOB tm Professional Advisors Program and the QuickBooks Pro Advisors.
A checkbook program like Quicken tm sometimes works for small proprietorships, but the basic versions don't effectively help you keep track of things like receivables and payables, and the reports are far from standard business reports, especially the balance sheet.
I have found through experience that even accounting novices can learn to operate a well designed accounting program for their own business with a few hours of assistance from me. Typically that involves:
Because my accounting practice has "grown up" using Macintosh tm computers, I am familiar both with Macintosh tm and Windows tm operating systems. In fact, now I'm running Windows software on my Intel Macintosh. Today, there are a number of computer programs suitable for the small business that will provide both sets of information. I am particularly familiar with two of them MYOB, and QuickBooks. I am a member of both the the MYOB tm Professional Advisors Program and the QuickBooks Pro Advisors.
A checkbook program like Quicken tm sometimes works for small proprietorships, but the basic versions don't effectively help you keep track of things like receivables and payables, and the reports are far from standard business reports, especially the balance sheet.
I have found through experience that even accounting novices can learn to operate a well designed accounting program for their own business with a few hours of assistance from me. Typically that involves:
Helping You Understand Your Business
I maintain a library of the most recent versions of
the
accounting programs my clients use. For example:
| Program/Platform |
Windows |
Macintosh (OS
X) |
|---|---|---|
| QuickBooks tm |
Versions 5R3 through 2008 (2006-2008
include all specialized industry versions) ∂
† |
Versions 4.12, 5, 6; 2005-2007 ∂†† |
| Quicken tm |
Versions 98 through 2007 |
Versions 2000
through 2007 |
| MYOB tm ††† |
Versions 8 through 12; 2005-2007;
also Business Essentials |
AccountEdge 1-3, 2004-2007; also
FirstEdge |
| Microsoft Office Accounting
Professional Π|
Versions 2006-2007 |
Not available |
Notes:
† I am not pleased with QuickBooks version 2000, because it requires you to submit your tax ID number to Intuit in order to register the program. Later versions can cause payroll problems. If you do not update the payroll program regularly, the payroll still will create paychecks, but won't calculate deductions, much to the distress of one client who issued several paychecks before discovering this. I recommend QuickBooks only if (a) you do not have payroll, (b) you use an outside payroll service, or (c) you enroll in QuickBooks Payroll update service and do not let your subscription lapse.
†† None of these programs calculates payroll. Instead they make use of a payroll program, Aatrix Top Pay, which is non intuitive to setup and use. I don't recommend it. I suggest you use an outside payroll service with these programs, or be willing to calculate paychecks manually.
††† These programs are cross-platform compatible (i.e., the same file can be opened in either Windows or Mac computers). FirstEdge is a Mac-Only program.
∂ The backup file of QuickBooks Versions 2005 through 2008 can be opened in either Windows or Mac computers.
ΠI have a limited number of free fully-licensed copies of Microsoft Office Accounting Professional, available to clients who have contracted with me to set it up for their small business.
† I am not pleased with QuickBooks version 2000, because it requires you to submit your tax ID number to Intuit in order to register the program. Later versions can cause payroll problems. If you do not update the payroll program regularly, the payroll still will create paychecks, but won't calculate deductions, much to the distress of one client who issued several paychecks before discovering this. I recommend QuickBooks only if (a) you do not have payroll, (b) you use an outside payroll service, or (c) you enroll in QuickBooks Payroll update service and do not let your subscription lapse.
†† None of these programs calculates payroll. Instead they make use of a payroll program, Aatrix Top Pay, which is non intuitive to setup and use. I don't recommend it. I suggest you use an outside payroll service with these programs, or be willing to calculate paychecks manually.
††† These programs are cross-platform compatible (i.e., the same file can be opened in either Windows or Mac computers). FirstEdge is a Mac-Only program.
∂ The backup file of QuickBooks Versions 2005 through 2008 can be opened in either Windows or Mac computers.
ΠI have a limited number of free fully-licensed copies of Microsoft Office Accounting Professional, available to clients who have contracted with me to set it up for their small business.
The one I use for my own accounting is MYOB (on
Macintosh).
Keeping all the versions available permits me to receive my clients' files and use them on the same version they are using, even if they haven't upgraded to the most recent version of the software. That way, when I return the file to them, I haven't upgraded them to a version they are not using.
Many of my clients send their data files to me (see the link to send me a file) to make specific changes, or to help them correct errors that they can't figure out. With a planned "appointment day" I can usually receive the file during the night and have it back by the end of the next day. Others have set up a Virtual Network Connection (VNC) server on their accounting computer. Using a VNC viewer I can access their accounting file directly, and under their direction modify or enter transactions. (It's necessary to do this under their direction so that when I prepare financial statements for third parties, I can remain independent during the stage of preparing compiled or reviewed financial statements. This doesn't mean that the client can reproduce what I'm doing, only that they understand what it is I'm accomplishing for them).
By keeping the books in good condition, you can be assured that reports you generate from them will give you current information you can use in running your business. For example, you can keep track of receivables and payables, and the resulting cash flows that are critical to the health of your business.
In order to minimize making errors that could change prior years data and to avoid spelling errors that multiply items and accounts, I strongly urge you to have me be the sole Administrator user on your accounting file, with you being a User with limited privileges. If you attempt to do a transaction that needs Administrator privileges, call or email me; it may be that I can suggest a way to enter the transaction, or, if it is truly a new type of transaction, send the file to me and I'll create the accounts/items for you. When you don't set things up like this, I often spend an hour (or many hours more), creating adjustments to bring the records into the position they were in at the end of the prior year before I can even begin to look at this year's data.
Many clients will consult with me periodically (for example, quarterly) to have me describe what their financial statements mean in terms of business operation. I compare them to other similar businesses using handbooks like "Financial Studies of the Small Business" published by Financial Research Associates. I can use my business background to help clients determine whether a particular expense is too large (or too small!) for their business.
Lenders and investors often will want more assurance that your business is what you say it is than just accepting the print out of reports from your accounting program. Sometimes you maintain your business records on the income tax basis or cash basis of accounting, but they want "Generally Accepted Accounting Principles" (GAAP). Sometimes, they want descriptive notes so they can better evaluate your business. And sometimes they want financial statements or schedules that your accounting system can't generate automatically (a Statement of Cash Flows often falls into this category).
Who else might want information about your business? Often this will be the result of a legal encounter of some sort. If you are getting married, you might need this to properly draw up a pre-nuptial agreement; if you are getting divorced, you or your soon-to-be-ex spouse may want it for settlement purposes.
CPAs offer three levels of assurance regarding financial statements and forecasts:
There can be circumstances where the report is expanded to include other information. Examples are: management elects to omit disclosures (notes describing accounting methods and other matters), I might not be independent with respect to the client, and there might be significant departures from the basis of accounting used for the financial statements.
When you only plan to use the financial statements for internal (management) use, I can issue such financial statements without a compilation report, by including a "For Management Use Only" footer on each page.
Keeping all the versions available permits me to receive my clients' files and use them on the same version they are using, even if they haven't upgraded to the most recent version of the software. That way, when I return the file to them, I haven't upgraded them to a version they are not using.
Many of my clients send their data files to me (see the link to send me a file) to make specific changes, or to help them correct errors that they can't figure out. With a planned "appointment day" I can usually receive the file during the night and have it back by the end of the next day. Others have set up a Virtual Network Connection (VNC) server on their accounting computer. Using a VNC viewer I can access their accounting file directly, and under their direction modify or enter transactions. (It's necessary to do this under their direction so that when I prepare financial statements for third parties, I can remain independent during the stage of preparing compiled or reviewed financial statements. This doesn't mean that the client can reproduce what I'm doing, only that they understand what it is I'm accomplishing for them).
By keeping the books in good condition, you can be assured that reports you generate from them will give you current information you can use in running your business. For example, you can keep track of receivables and payables, and the resulting cash flows that are critical to the health of your business.
In order to minimize making errors that could change prior years data and to avoid spelling errors that multiply items and accounts, I strongly urge you to have me be the sole Administrator user on your accounting file, with you being a User with limited privileges. If you attempt to do a transaction that needs Administrator privileges, call or email me; it may be that I can suggest a way to enter the transaction, or, if it is truly a new type of transaction, send the file to me and I'll create the accounts/items for you. When you don't set things up like this, I often spend an hour (or many hours more), creating adjustments to bring the records into the position they were in at the end of the prior year before I can even begin to look at this year's data.
Many clients will consult with me periodically (for example, quarterly) to have me describe what their financial statements mean in terms of business operation. I compare them to other similar businesses using handbooks like "Financial Studies of the Small Business" published by Financial Research Associates. I can use my business background to help clients determine whether a particular expense is too large (or too small!) for their business.
Securing business information from unauthorized access
A small business has unique problems when it comes to
securing
business information and assets. If you pay attention to the news, you
have
undoubtedly seen or read reports of someone accused or convicted of
embezzlement;
and often the victim is a small business. Rarely is the business able
to recover from these losses.
If your business accepts credit cards, you may have had to beef up your security to meet the credit card company requirements. Here are some ways to do that:
For Windows: Get TrueCrypt, free open source
software, and create a virtual secure encrypted disk. Put all your
sensitive information in that disk. You can even double the security by
having a visible disk that contains dummy files and an inner "hidden"
disk that contains the real data. For Macs, create an encrypted disk
image using the Disk Utility. Don't have the system or program save the
password.
Don't use default user names and
passwords, especially for the Administrator. I've seen automatic access
attempts using names like "Admin" and "Administrator" and passwords
like "123456789, "password, "pswd," and other basic variations. So use
a strong password and a complex user name. When possible, have two
accounts, an Administrator account for making system changes and a
limited user account for everyday use. Unfortunately, in Windows, some
programs (like QuickBooks) require an Administrator account to operate;
that compromises security.
Make sure you have installed
internet security programs. Here's a recommendation when you get a new
computer: Don't connect it to the internet until you have ensured that
security programs are installed and operational. When I was first
installing Windows on my iMac I didn't do that and it was immediately
bombarded by who knows what stuff. Fortunately, I could merely trash
the file and re-do the installation after disconnecting the computer
from the internet. The architecture of Mac computers makes them much
less subject to viruses.
Another security issue is preventing embezzlement or theft. I remember
years ago when Ian was managing a convenience store, he caught
employees in cahoots with a vendor stealing product before it even came
into the store. A cardinal rule is to trust your employees, but don't
give them the opportunity to abuse that trust. That means doing
background checks on new employees, and putting measures in place to
minimize problems. For control over money, the most important thing is
to do bank reconciliations promptly. Do these yourself or have me do
them; don't have the bookkeeper do them. If the bank provides on-line
or paper images of the checks, review them for details (a common scheme
is to change the name of a vendor to a dummy company after you sign a
check). Be familiar with your regular vendors; do a Dun & Bradstreet check on new
vendors.
If your business accepts credit cards, you may have had to beef up your security to meet the credit card company requirements. Here are some ways to do that:
For Windows: Get TrueCrypt, free open source
software, and create a virtual secure encrypted disk. Put all your
sensitive information in that disk. You can even double the security by
having a visible disk that contains dummy files and an inner "hidden"
disk that contains the real data. For Macs, create an encrypted disk
image using the Disk Utility. Don't have the system or program save the
password. Don't use default user names and
passwords, especially for the Administrator. I've seen automatic access
attempts using names like "Admin" and "Administrator" and passwords
like "123456789, "password, "pswd," and other basic variations. So use
a strong password and a complex user name. When possible, have two
accounts, an Administrator account for making system changes and a
limited user account for everyday use. Unfortunately, in Windows, some
programs (like QuickBooks) require an Administrator account to operate;
that compromises security. Make sure you have installed
internet security programs. Here's a recommendation when you get a new
computer: Don't connect it to the internet until you have ensured that
security programs are installed and operational. When I was first
installing Windows on my iMac I didn't do that and it was immediately
bombarded by who knows what stuff. Fortunately, I could merely trash
the file and re-do the installation after disconnecting the computer
from the internet. The architecture of Mac computers makes them much
less subject to viruses.Helping You
Communicate with Lenders, Investors, and Others
Lenders and investors often will want more assurance that your business is what you say it is than just accepting the print out of reports from your accounting program. Sometimes you maintain your business records on the income tax basis or cash basis of accounting, but they want "Generally Accepted Accounting Principles" (GAAP). Sometimes, they want descriptive notes so they can better evaluate your business. And sometimes they want financial statements or schedules that your accounting system can't generate automatically (a Statement of Cash Flows often falls into this category).
Who else might want information about your business? Often this will be the result of a legal encounter of some sort. If you are getting married, you might need this to properly draw up a pre-nuptial agreement; if you are getting divorced, you or your soon-to-be-ex spouse may want it for settlement purposes.
Financial Statements and Forecasts
Besides the traditional financial statements, I can also prepare Financial Forecasts to help you plan your business, raise capital, or get a business loan. I design Financial Forecasts on a spreadsheet program so that it produces output in financial statement form, self consistent throughout. I help you define your assumptions, and incorporate them into the spreadsheet. It can start with fairly basic assumptions, and can be refined and expanded as necessary to include detailed calculations.CPAs offer three levels of assurance regarding financial statements and forecasts:
Compilation
In a compilation I do not provide assurance of any sort. The basic report I prepare is along the following lines:I have compiled [description of financial statements] in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements information that is the representation of the management [owners]. I have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them.
(AICPA Professional Standards, Vol. 2, AR Section 100.14, Copyright 2003, American Institute of Certified Public Accountants, Inc.)
There can be circumstances where the report is expanded to include other information. Examples are: management elects to omit disclosures (notes describing accounting methods and other matters), I might not be independent with respect to the client, and there might be significant departures from the basis of accounting used for the financial statements.
When you only plan to use the financial statements for internal (management) use, I can issue such financial statements without a compilation report, by including a "For Management Use Only" footer on each page.
Review
In a review I provide limited assurance. I perform two types of activities in addition to the procedures I follow in a compilation:These two types of activities fall far short of the work required to perform an audit. A review report will look something like this:
I have reviewed the accompanying [description of financial statements], in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management (owners).
A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.
(AICPA Professional Standards, Vol. 2, AR Section 100.38, Copyright 2003, American Institute of Certified Public Accountants, Inc.)
Audit
Performing an audit of financial statements is the one activity that requires licensing as a Certified Public Accountant. Everything else that we do can legally be done by others, although terminology might vary. Performing an audit is also the one thing I do not do, since I have found that my clientele generally have not needed audits for their businesses. In the rare situation where an audit is needed, I refer my client to another CPA firm that is much better qualified than I to do this type of work. For comparison, here is what a basic audit report looks like:We have audited the [description of financial statements]. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluation the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of X Company as of [dates], and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
(AICPA Professional Standards, Vol. 1, AU Section 508.08, Copyright 2001, American Institute of Certified Public Accountants, Inc.)
This page was last updated on October 8, 2007.
