Accounting software: Getting started

So you’ve taken that bold step of getting yourself some accounting software. Perhaps a free package to get yourself started or maybe you’ve gone straight out of the gate and sprung for a fancy subscription (check you out!)

But now what?

You could just get the ball rolling by entering all your sales invoices and whacking some expenses into the system. But to what end?

The first thing you need to ask yourself is “what am I trying to get out of this?

Just a place to log everything and never look back? Hand over once a year to a forgiving accountant and be done with it? I will only shake my head in disappointment ever so slightly.

It can be daunting to try and get a grasp on this stuff. When you started your business it was with a skill or passion for something unique to you. The last thing you were looking forward to was entering transactions and reconciling accounts. But once you get a handle on it, your accounting software will be one of the most powerful resources you have.

So let’s start with the end in mind…

As a basic function you want to be able to produce simple reports that show your financial performance. The main two are:
Profit and loss report – this is going to show you what you’ve earned against the costs you’ve incurred
Balance sheet report – this is a snap shot of your assets and liabilities at a certain point in time

To get the best out of these reports, you’ll need to customise your Chart of Accounts. This is like an index of all the different types of income, expenses, bank accounts etc. that your business uses. For example:

1. The default setting may show codes called
a. 4000 – Sales
b. 5000 – Purchases
This means that whenever you sell a product or service, these are the codes you would use and this is how the totals would be shown on your reports. However, say you have two very different product types with different costs associated to them. In the chart of accounts, you could set the codes up as:
a. 4000 – Clothing sales
b. 4100 – Footwear sales
c. 5000 – Clothing purchases
d. 5100 – Footwear purchases

When producing your profit and loss report you’ll have a much more in-depth view of where the money is being made.

2. The default setting may show a code called 7000 – Directors’ loan account. This is used when a director puts money into or takes money out of the business. But perhaps you have two directors working in your business. In the Chart of Accounts, you could change to having a nominal account for each director. When you run your balance sheet report, you’ll be able to see how much each individual owes to/is owed by the business at any given time.

*If you’re a partnership the same principal applies for the drawings of you and your partner(s).

You may just need to make a couple of small alterations like these to get the system working exactly the way you want. If you’re coming unstuck, have more complex needs or could use a little help, this is something your bookkeeper or accountant will be able to guide you on.

Default settings

If you’re going to be sending out sales invoices directly from your accounting software then you’ll want to enter your business name, trading address, company number and all the basics.

The default year end dates vary from company to company so be sure to go into your settings and choose the right date for your business. This will ensure that when you run annual reports, the correct period is pulled through. This applies to sole traders and partnerships too – you may not have a typical 5th April year end so keep an eye out for this.

The same goes for other dates such as VAT – you’ll want to make sure that if you’re VAT registered, you set the correct periods and frequency for returns. Most companies are quarterly but if you file monthly or annually this isn’t likely to be the default setting. And while we’re on the topic of VAT, don’t forget to set your VAT scheme options. Are you filing on an invoice or cash basis? Are you part of the flat rate scheme?


Once you’ve gotten all of these basics nailed, it’s time to explore the wonderful world of add-ons! If you’re paying for a software licence, chances are there will be some extras you can opt in for that integrate with your software to enhance your usage further. Without endorsing any specifics, there are plenty of solutions to help in these areas:
• Receipt scanning to automate uploading, reduce data entry time and store files
• Mileage tracking
• Expenses claims
Take a look at your specific software and see what is available. These often come with a small added cost so utilise free trials where available to check if they’re going to be beneficial for you.

Opening balances

If you’ve already been trading for a while, whether this is your first time using accounting software or are moving from a different package, you’re most likely going to have some opening balances to enter. Depending on your circumstances these could be from your last set of annual accounts, your old software or simply the balance on your bank account at the date you’re starting to use your new software.

If you’re not confident doing this yourself, it’s another one of those areas that your bookkeeper or accountant will be able to painlessly help you through. Getting this stage wrong can lead to serious confusion and issues later down the line. Don’t believe me? Check out this example:

  • For work you’ve previously done, a customer owes you £3,000.
  • In the chaos of the working day, you forget to enter any opening balances onto the system and just start using it.
  • You do future work for the same customer and continue to send them sales invoices.
  • To keep the cash flowing, you send out customer statements to remind them of outstanding balances (great job – this is very important!)
  • They pay you promptly and clear the balance each time.
  • Your year end comes round and your accountant notices a £3,000 difference on your aged debtor report to what they expected.
  • You look back and realise the statements that have been sent to the customer didn’t show the £3,000 balance owed at the start of the year.
  • You contact them and attempt to collect the balance but find the customer has gone into administration.

OUCH – that little mistake could wind up being quite costly, so make sure to check off this stage early!

OK you’ve set everything up and it’s truly magical. Anyone would think this software had been custom built to meet your needs. Each transactions has been entered, analysed, reconciled to perfection. You run reports and they make some sort of sense, so what more could I have to tell you? My final and favourite way to enhance the data you’re actually extracting from your software…


And no, I’m not talking about the childhood diary you have hidden away in a keep sake box, it’s best to keep that private. Journals are accounting adjustments used to enhance the accuracy of your reporting information. This is something you may be familiar with your accountant doing at your year end retrospectively. When done by your bookkeeper on an ongoing basis as well, your management reports will be much more useful. Here’s a simple example of how the appearance of your reports can be skewed without using regular journals:

At a first glance, it could appear that in March and April things were great, but May took a dip. So what’s changed? Your quarterly rent bill was invoiced on 1st Feb for £1,200 and then again on 1st May. With an invoice and tax date of 1st May the full amount for £1,200 has shown up in the May figures. But this gives the appearance when looking at the bottom line that performance was down. The use of journals accounts for the fact that each £1,200 charge covers multiple months and apportions them evenly, giving a better representation of the profitability each month.

Now in isolation, it might be quite obvious that this is what has happened and you wouldn’t see it as a cause for concern when looking at the reports. But imagine if there are numerous cases of these things happening, both in the expenses and income sections. A quality bookkeeper will work with you to manage the ins and outs of these transactions on an ongoing basis. That way, you can really understand your month on month performance without attributing fluctuations to the wrong causes.

And that’s where we’ll leave it for now folks. If you’re starting from scratch that’s a lot to take in and get working with. There are plenty of things you can do to utilise your chosen software package further such as tracking business divisions, personalising invoice templates and developing custom reports. If you’d like to have a chat to see how we can help you with any of these areas please Get In Touch.

Leave a Reply

Your email address will not be published. Required fields are marked *