Importance of Accounting in Small Businesses

This assignment delves into the significance of accounting in small businesses, highlighting its crucial role in managing daily transactions, ensuring transparency, and facilitating effective financial management. The importance of using accounting software like Reckon One is also discussed, emphasizing its time-saving features, accuracy, and security measures. Additionally, the assignment touches upon the benefits of accounting for taxation authorities, making it a comprehensive resource for students seeking to understand the importance of accounting in small businesses.

Research Task - Assessment 1

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Producing report identifying the minimum specification of accounting systems and choosing
the best suitable accounting software for small business.......................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6
APPENDIXES ................................................................................................................................7
Interview an owner of small business....................................................................................7
Interview an accountant with regards to accounting packages..............................................7
Chart of Accounts...................................................................................................................8
BAS........................................................................................................................................8

INTRODUCTION
Accounting is crucial for business which helps to record transactions. Present report deals
with client who is planning to start small business in Canberra and is requiring advice for
implementing accounting software which will be the best suitable for the business. Moreover,
three packages such as Reckon One, Quickbooks and MYOB are discussed and recommendation
is provided to use by firm for securing financial process. Furthermore, minimum specifications
of accounting system required are explained. Benefits and weaknesses of accounting software
are listed along with pricing plan of software. By considering all such information,
recommendation is given to use accounting software meeting needs in a better way.
MAIN BODY
Producing report identifying the minimum specification of accounting systems and choosing the
best suitable accounting software for small business
Legal structure and requirements
Accounting software is essentially required in the business so as to attain clarity in
operations. It is used to record all data regarding the transactions and maintains various accounts.
It includes accounts receivables, accounts payable, general ledger, payroll and extracting out trial
balance in effective manner. It helps firm to handle and record routine transactions in software so
as to analyze financial standing at a particular period. Client will start his small business in
Canberra and accounting software is must for transparency of numerical data. There are various
specifications which are required for installing software (Kim, Jang and Yang, 2017). New
generation software requires operating system of Microsoft Windows 7 or higher for smooth
performance. Business will also require Pentium IV Processor, 4 GB of storage memory, 64 or
32 bit operating systems. All these hardware requirements should be met. The software should
allow input of entry in journal and then checking and reconciling the same for preparation of trial
balance. General ledger needs to be integrated with accounts payable, receivables, cash book,
fixed assets. System should allow insertion of multiple GST tax rates on whatever goods and
services sold. The legal structure of business would be sole proprietorship which is suitable for
running firm as it is an economical legal form of business. BAS is form submitted by the
business to ATO (Australian Taxation Office) registered for paying GST for reporting taxation
liabilities.
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Accounting software packages available to small business owners
There are various software packages which can be used by the business in order to meet
accounting requirements in effectual way. Three different types of packages are Quickbooks,
Reckon One and MYOB which are the best suitable for small business in Australia. These
packages have reliability and integrity for the firm as accounting needs regarding transactions
may be fulfilled quite effectually. Quickbooks was formed by Intuit for providing financial
services mainly for small and medium enterprises. This could be used by the business for
attaining requirements in the best possible manner. On the other hand, Reckon One is another
highly integrated accounting software which can help business in meeting financial needs. Real-
time data can be accessed in a better way and firm will be benefited by implementing such
software. Whereas, MYOB is another software which can be utilized for day-to-day recording of
transactions occurred in the business. Moreover, it is required all the data should be collected
before choosing desired software for easing-off and securing the financial process (Pakroo,
2018).
Costs
Cost is a prerequisite for any small business firm because it has limited resources in hand
and it is required that funds should be used judiciously for meeting desired needs. Maximum
benefit could be accomplished with minimum costs so that dual benefit can be achieved. It is
required that cost of accounting software should be low and at the same time, it should posses all
essential features in it. The plan and pricing of different software have fair difference. This is
evident from the fact that Quickbooks has price of $10 per month. While, Reckon One has $5 per
month and on the same basis, MYOB has much price difference in comparison to both as it has
$20 per month. This is cleared from the fact that cost-effective package for whole year is of
Reckon One as it is of the least cost which will be required to be incurred for availing services
for one year. The prices of other two software is high which is not to be used by client who plans
to operate in Canberra for running small business (Collis, Holt and Hussey, 2017). There are
immense features which can be availed by using Reckon One. Among these are, real-time
reporting of all payable and receivables recorded in software. Online invoice option is available
for creating bills and also to track and effectively manage overdue and paid invoices or bills for
enhancing cash flow.
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Benefits and weaknesses of accounting packages
Benefits
 It is helpful to business as better recording and processing of transactions in effective
manner.
 It will be useful in carrying out transparency as summarized view can be achieved.
 Reckon One would provide effective way for reconciling bank statements which will be
easy to track money flowing in and out of the business.
 Expenses can be tracked and payroll entries can be done in effectual manner.
 Moreover, it provides way to add or delete entered voucher entry in software which can
be changed in a better manner when certain deletions need to be made. Adequate information can be inserted which helps in getting out correct statements as
proper entries are made reflecting real position of firm (Dai and Vasarhelyi, 2017).
Weaknesses
 The data can be lost if power outrage may take place affecting whole work. It is required
that backup should be made so that in case of power outrage, financial data might not get
affected.
 Incorrect information can be entered as all data is inserted manually only and any error
may creep in while inserting information due to human error.
 Numerical data is only inserted which do not take into account non-monetary
information. It is another weakness of using accounting software.
 Configuration is one of the crucial aspect of accounting software by which it is installed
in the firm. But as firm expands, migration of data is made which means that large data is
migrated which is a tedious task (Acevedo. 2017).
 Fraud may also prevail as information is available on online basis and security measures
are needed to overcome the same.
Compensating for weaknesses
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Business has to implement accounting software so that transparency in relation to
transactions can be attained in a better way. Furthermore, complying with legal formalities are
needed for meeting taxation related information (Daily and Quinn, 2018). It will be managed by
firm by carrying out BAS (Business Activity Statement) reflecting GST tax obligations at
different rates. It would be helpful in reporting PAYG (Pay As You Go) instalments, withholding
tax and other taxes. Moreover, Reckon One will be useful in carrying out weaknesses of
accounting software. Backup options are available which will provide client in making out
backing up of data. Moreover, system configuration will be compatible as enough memory
storage of 4 GB of higher and server will be enhanced and requirements will be met accordingly.
On the other hand, it will overcome migration weakness because business is new and will have
fresh data. Moreover, chart of accounts will provide various heads and according to the same, it
would be feasible for firm in meeting out in formalities in effective manner. On the other hand,
proper security measures will be enabled with reference to all the data and as such, small
business will overcome weaknesses by installing Reckon One in premises for meeting all
requirements in the best possible way.
Accounting terminology
Accounting is a vast field which deals with recording, classifying, summarising and
interpreting numerical data quite effectually (Han, Zhang and Greene, 2017). Moreover, there are
various accounting terminologies which are used in recording financial information with ease.
Accounts payable is termed as obligations or liabilities of business representing money owed to
external parties. It is helpful in making accounting entries with regards to money already being
paid to creditors and remaining amount which needs to be paid for clearing dues. Furthermore,
accounts receivables is another accounting term which firms owes from debtors or customers
whom goods have been sold on credit. Hence, such terminologies of accounting are basics which
helps in meeting out proper entry in accounting software and as such, higher transparency is
achieved.
CONCLUSION
Hereby it can be concluded that accounting is an essential requirement and for meeting
this requirement, accounting software is prerequisite for securing financial process. In relation to
the same, various packages are considered and among Quickbooks, MYOB and Reckon One,
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latter is the best suitable for client for running small business. It is recommended to use this
software all benefits such as real-time processing of data, generating reports would be easier.
Moreover, cost-effective proposal will be there for company as pricing package is affordable in
comparison to other ones. Hence, financial process would be secured by using Reckon One
accounting software by client.
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REFERENCES
Books and Journals
Collis, J., Holt, A. and Hussey, R., 2017. Business accounting. Palgrave.
Dai, J. and Vasarhelyi, M. A., 2017. Toward blockchain-based accounting and
assurance. Journal of Information Systems.31(3). pp.5-21.
Daily, F. W. and Quinn, J. A., 2018. Tax Savvy for Small Business: A Complete Tax Strategy
Guide. Nolo.
Han, L., Zhang, S. and Greene, F. J., 2017. Bank market concentration, relationship banking, and
small business liquidity. International Small Business Journal. 35(4). pp.365-384.
Kim, S. H., Jang, S. Y. and Yang, K. H., 2017. Analysis of the Determinants of Software‐as‐a‐
Service Adoption in Small Businesses: Risks, Benefits, and Organizational and
Environmental Factors. Journal of Small Business Management. 55(2). pp.303-325.
Pakroo, P., 2018. The small business start-up kit: A step-by-step legal guide. Nolo.
Online
Acevedo. 2017 [Online] Disadvantages of accounting software Available Through:
<https://bizfluent.com/about-5106557-disadvantages-accounting-software.html>
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APPENDIXES
Interview an owner of small business
Q1. Do you acknowledge that accounting has importance in small business?
Accounting is quite important in managing transactions of day-to-day business and
transparency can be achieved of cash position.
Q2. Do you feel which factor of accounting influences to buy the services?
The transparency and reliability of accounting entries helps to know effectively financial
position as from this, financial statements are prepared.
Q3. Do clarity is provided regarding obligations of business in the market?
This is achieved in effective way because of making entries of accounts payable which
highlights amount outstanding to be paid by firm.
Q4. What is the greatest benefit of accounting to business?
It is beneficial particularly in analysing cash position in effective manner as proper
entries are made in cash book and journal is passed as well.
Interview an accountant with regards to accounting packages
Q1. Do accounting packages helpful in saving time?
Yes, it is time-saving in comparison to manual recording of transactions as errors are
detected in effective way.
Q2. Which software currently work upon and why?
Reckon One is used as it has multiple benefits. Moreover, security measures are enabled
in it which do not lead to manipulation of entered data.
Q3. Do you think accuracy is increased by using accounting package?
Yes, accuracy has been maximised as tedious task in manual accounting is reduced up to
a high extent.
Q4. Do you agree that taxation authorities are benefited by relying on accounting software?
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Taxation authorities are equally benefited as they rely on reliability of accounting entries
made and financial statements extracted thereof.
Chart of Accounts
Illustration 1: Reckon One - Chart of Accounts
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BAS
Illustration 2: BAS
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