Accounting for Small Business:
How To Choose The Best Accounting Software

Woman processing her small business accounting in a cafe using the latest accounting and bookkeeping technology.

In small businesses, accounting plays an important role, and the choice of accounting software for small businesses often gets overlooked. It ensures the company's long-term success, as it helps business owners understand their current financial situation and plan for the future.

Keeping accurate accounting records using small businesses' accounting software allows them to measure their cash flow and make informed decisions about how to allocate their resources. In addition, having up-to-date financial statements also enables small business owners to seek capital from third parties if needed, which can be an essential catalyst for growth.

Accounting is an integral part of any small business looking to succeed in the long run. The purpose of this guide is to introduce you to the basics of accounting and bookkeeping and provide the essential steps to choosing the best accounting softwares for small businesses.

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How to Accurately Account for Small Businesses

Accurate accounting is essential for all businesses, but it is especially vital for small business owners when every cent is critical for success. Accounting can be intimidating, so it’s essential to know the basics of how to account for a small business properly and how the software helps. Let's dive into the basics of accounting for small businesses.

Accounting Principles and Standards

The first step in accurately accounting for a small business is understanding the principles and standards used in accounting. Generally accepted accounting principles (GAAP) are standards companies must adhere to when preparing financial statements.

GAAP includes guidelines such as consistency, relevance, reliability, and comparability. Understanding and adhering to these standards will help ensure accurate financial reporting by your company.

Accrual Accounting Method

Another important aspect of accounting for a small business is using the accrual method of accounting. This method allows you to record transactions when they occur rather than when cash changes hands or an invoice is received.

This means that you will be able to track income and expenses more accurately throughout the year and better plan for future expenses. It also ensures that taxes are reported under IRS or Canada Revenue Agency regulations.

Bookkeeping Basics

The last step in accurately accounting for a small business is mastering bookkeeping basics. Bookkeeping involves tracking each transaction that occurs within your business.

A good bookkeeper should be able to provide accurate records of all transactions over time so that you can analyze trends and make informed decisions about your company’s financial health and future plans.

Accurate accounting is essential for all businesses, but this is especially true for small businesses where even minor mistakes can have major repercussions on their bottom line. By understanding the principles and standards of GAAP, utilizing the accrual method of accounting, and mastering bookkeeping basics, you can ensure that your small business’s financial statements are up-to-date and accurate at all times.

12 Basics of Accounting for a Small Business

By becoming familiar with the basics of accounting, small businesses can save money and maximize their finances. Being able to properly read financial reports, assess financial health and understand how money flows in a company or institution can all be incredibly powerful tools.

12 Basics of Accounting for a Small Business

Learning the basics of accounting will better equip you to achieve success in pursuing these kinds of activities and give you more confidence and peace of mind when dealing with your finances. When approaching accounting, small businesses should make themselves familiar with these basics.

1. Get to know the types of financial statements.

Four primary financial statements in accounting are used to communicate the financial performance, position, and cash flows of a business:

The balance sheet shows the assets, liabilities, and equity of the company. At a given point in time, it provides an overview of a company's financial position. The balance sheet assesses the company's solvency and ability to pay its debts as they come due.

An income statement, also known as a profit and loss statement, shows a company's revenues, expenses, and net income for a specific period of time, usually one year. The income statement is used to assess a company's profitability and its ability to generate income.

A cash flow statement shows the inflows and outflows of cash for a company during a specific period of time. It shows how much cash the company generates from operations, investing, and financing activities. The cash flow statement assesses a company's ability to generate and manage its cash resources.

A statement of changes in equity includes information on the company's net income, dividends, and other transactions that have affected equity. The statement of changes in equity is used to assess the company's ability to retain earnings and grow its equity base.

These four financial statements are essential for internal and external financial information users. They provide valuable information that can be used to make informed decisions about a company's financial performance, position, and future prospects.

2. Understand accrual vs cash accounting

Accrual accounting is a method of small business accounting that recognizes financial transactions when they are incurred rather than when payment is received or made.

For example, let's say a company provides a service to a customer in January, but the customer pays in March. Under accrual accounting, the revenue from that transaction would be recognized in January, when the service was provided, even though payment was not received until March.

Similarly, if a company incurs an expense for goods or services in December, but does not pay for them until January of the following year, the expense would be recognized in December, when it was incurred, rather than in January, when payment was made.

Accrual accounting provides a more accurate picture of a company's financial performance and position, as it captures the economic events that have occurred, regardless of when payment is received or made. This allows for a better understanding of the company's financial situation, as it provides a clearer picture of its revenues and expenses, as well as its assets and liabilities.

In contrast, cash accounting, based on cash inflows and outflows, only recognizes transactions when payment is received or made. This type of accounting is generally less complex and is often used by small businesses and individuals.

3. Learn double-entry bookkeeping

Double-entry bookkeeping is an accounting method that records transactions in two accounts to offset each other. For example, if a company buys $100 worth of inventory on credit, it will record a $100 debit in the inventory account and a $100 credit in the accounts receivable account.

4. Become familiar with debits and credits

Debits and credits are fundamental concepts in small business accounting and are used to record transactions in a double-entry accounting system.

A debit is a record of an increase in assets or a decrease in liabilities or equity. In other words, when a debit entry is made in a company's accounting records, the company's assets increase, or its liabilities or equity decrease. For example, if a company purchases inventory, the company's assets increase, and this increase is recorded as a debit.

On the other hand, a credit is a record of a decrease in assets or an increase in liabilities or equity. In other words, when a credit entry is made in a company's accounting records, the company's assets decrease, or its liabilities or equity increase.

For example, if a company receives payment from a customer, the company's assets (cash) increase, and this increase is recorded as a credit.

It is important to remember that in a double-entry accounting system, for every debit entry, there must be a corresponding credit entry and vice versa. This ensures that the total of all debit entries always equals the total of all credit entries, which helps maintain the integrity of the accounting records and ensures that the accounting equation remains balanced.

5. Understand accruals and deferrals

An accrual is an expense that has been incurred but has yet to be paid for or revenue that has been earned but has not been received. A deferral is an expense that has been paid for but has yet to be incurred or revenue that has been received but has yet to be earned.

6. Analyze journal entries

A journal entry records a transaction in a company's books of account. Journal entries are used to record transactions in the general ledger, which records all of a company's financial transactions.

7. Recognize ledgers and trial balances.

A ledger is a record of all financial transactions for a particular account. A trial balance lists all ledger balances at a particular time.

Trial balances ensure that debits equal credits after all transactions have been recorded in the ledger.

8. Keep track of your assets and liabilities

Assets and liabilities are two critical concepts in small business accounting. Understanding the difference between them is essential for effectively managing a small business's finances.

Assets are resources that a business owns and controls and can provide future economic benefits. Assets are used to generate income and are expected to increase the value of the business over time.

On the other hand, liabilities are obligations that a business owes to others. Liabilities represent the portion of the business's resources used to finance its operations or investments and must be repaid in the future.

The difference between assets and liabilities is called equity, representing the owner's interest in the business. Equity can come from investments made by the owner or represent the portion of the business's assets not financed by liabilities.

For a small business, it is vital to maintain a healthy balance between assets and liabilities. Having too many liabilities and needing more assets can put the business at risk of financial distress. Having too many assets and not enough liabilities can limit its ability to grow and take advantage of opportunities. By carefully managing its assets and liabilities, a small business can maintain financial stability and position itself for long-term success.

Keep track of your assets and liabilities

9. Understand the different methods of depreciation

There are several different methods of depreciation used in accounting of small business, and each has its own advantages and disadvantages. The most common depreciation methods are straight-line depreciation, declining balance depreciation, sum-of-the-years-digits depreciation, and units-of-production depreciation.

10. Be familiar with Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP) are a set of standards businesses must follow when preparing financial statements. GAAP guides how transactions should be reported and how financial statements should be prepared. All businesses should familiarize themselves with GAAP standards, but you can outsource your financial management to small local accounting businesses.

11. Keep accurate records

Keeping accurate records is essential for any business, but it is especially important for businesses that deal with multiple suppliers, distributors, manufacturers, and subcontractors.

Accurate records help you track your income and expenses so that you can make informed financial decisions.

12. Use proper accounting software for small businesses

Using proper accounting software is essential for all businesses that deal with finances. Accounting in small business using proper software can help you keep track of your income and expenses and generate financial statements that suit financial controlling authorities.

With this knowledge under your belt and the best accounting software for small businesses, you will be better prepared to take control of your company’s finances moving forward!

Choosing the Best Small Business Accounting Software

It's crucial to pick the right accounting software for your small business. It will significantly impact how you manage your finances and accounts and can help you save time and money in the long run.

There are many different types of small business accounting software available, so it’s essential to research and finds one that fits your needs. Here are some tips for choosing the best small business accounting software.

Understand Your Needs

The first step is to understand exactly what you need from the software. Different types of businesses have different needs in accounting, so it’s essential to figure out what features and functions you need before making a decision.

Do you need something that can handle payroll, invoicing, or tax filing? Make sure to think about any additional features or functions that would be beneficial for your particular business.

Research Different Accounting and Bookkeeping Software Options

Once you know what features and functions you need, start looking into different options. Take some time to research various programs and read reviews from other users. As a result, you'll be able to determine reliable and user-friendly programs.

Consider free options if budget is an issue. These can provide enough functionality without breaking the bank.

Evaluate Accounting Software Prices & Features

Consider each option's pricing structure and features list after you have narrowed down your options. Choose a small business accounting software package that fits your budget while still meeting all your needs, as many offer flexible plans with different levels of functionality.

Additionally, ensure the software for small business accounting offers any additional features or services necessary for your specific industry or situation (e.g., industry-specific features).

When choosing accounting software for small business, there are many factors to consider, including price, features list, user reviews, and more. Understanding exactly what type of financial management system you need is essential before comparing different options - this will help ensure that the program fits all of your requirements while staying within budget constraints.

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Among all small business software, accounting is arguably the most important one. Taking some time to research different programs before making a final decision is critical - this way, you can be confident in knowing that you’re getting the best possible accounting software, small business can keep track of their finances most efficiently.

Running a successful business requires keeping finances in order. Accounting and bookkeeping are often used interchangeably, and both are essential for maintaining accurate records and ensuring your finances are in order.

While they may seem similar, there are distinct differences between accounting and bookkeeping that you should know. Here are some things we need to know.

Bookkeeping vs Accounting: How Do They Differ?

A bookkeeper records all financial information related to a company or organization. This process includes tracking income and expenses, creating invoices, reconciling accounts, and keeping track of employee paychecks. Bookkeepers use software programs such as QuickBooks or Xero to manage their accounts.

Accounting, on the other hand, is the practice of analyzing financial data and using it to make decisions about how to manage a business’s finances. Accountants use data from bookkeepers for setting budgets, analyzing trends, preparing taxes, reviewing financial policies, and advising on investments and loans.

In addition to these tasks, accountants must also be familiar with Generally Accepted Accounting Principles (GAAP), ensuring that companies report their finances accurately and consistently across different industries.

The Role of Technology in Bookkeeping and Accounting

Technology has become an integral part of bookkeeping and accounting tasks in today's digital world. Software programs like QuickBooks or Xero allow businesses to automate many tedious processes associated with bookkeeping, such as invoicing customers or tracking expenses—saving time while ensuring accuracy.

Additionally, cloud-based accounting software allows businesses to store financial records online so they can be accessed anywhere at any time—making collaboration more straightforward than ever before.

Finally, artificial intelligence (AI) is being used more frequently in both bookkeeping and accounting to help automate tasks even further to save time and money for businesses around the world.

To choose the best accounting softwares for small businesses, it’s essential to understand the difference between accounting and bookkeeping tasks. Technology has become an integral part of these tasks allowing businesses to automate tedious processes while ensuring accuracy, collaborating more efficiently, saving time, and reducing costs. What role does software play? Here’s the answer.

Finding the Right Bookkeeping Software for Small Business

Choosing bookkeeping software for a small business can be a daunting task. In every process concerning bookkeeping, small business software plays an important role. There are so many options, and knowing which is best for your business needs can be challenging. With the right small business bookkeeping software, you can ensure that your finances are well-organized and up-to-date, allowing you to focus on growing your business.

Let’s discuss what to look for when choosing bookkeeping software for small businesses.

What features should you look for in accounting software for business?

When choosing bookkeeping software for small businesses, consider the features that are important to you. Some features to look out for include invoicing, payment processing, expense tracking, tax filing, payroll processing and customer relationship management (CRM).

Each of these areas will have different features that may be more or less useful depending on the type of small business you own and operate. For example, invoicing features such as generating automated invoices may be essential if you are in the retail industry. If you have a large number of customers, then having the best software for small businesses with an integrated CRM system is also necessary.

It is essential to assess each feature and decide which will provide the most value for your business before deciding which bookkeeper software for small business is right for you.

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Cost considerations

Cost is another crucial factor when selecting the best accounting software for small businesses. Most products offer basic functionality free of charge but typically require a subscription or license fee to access additional features or better support services.

Be sure to read through the pricing information carefully to understand precisely what is included with each package and how much it will cost if you decide to upgrade later on down the line.

Additionally, some products offer discounts or special offers if purchased in bulk or through specific payment methods — so always keep an eye out for potential savings opportunities!

Security matters

When selecting a business software for accounting, your data's security should also be considered. Look into what product uses types of encryption technologies to protect sensitive financial information from being accessed by unauthorized users or hackers.

Additionally, verify that any cloud services offered by the vendor include measures such as regularly scheduled backups and failover protection in case of any technical issues with their servers or infrastructure. These types of safeguards help ensure that your data remains safe and secure while using their product.

Picking out bookkeeping software for small business can seem like an overwhelming task at first glance. However, it becomes easier with some research into what features each product has available and their associated costs and security measures.

By considering all of these factors before deciding which solution is right for your small business needs, you’ll be able to pick out a product that provides value and keeps your finances organized without breaking the bank!

Now that we understand what type of software and the range of features best suited for small businesses' financial management needs, we can explore which accounting softwares for small business precisely fit the bill.

What Are the Best Accounting Softwares for Small Business?

When you run a small business, best accounting software can help you manage your finances more effectively. Still, knowing which software is best for a particular business can take a lot of trial and error. Let’s look at some of the most popular accounting software for small businesses.


One of the most widely used small business accounts software is QuickBooks. It’s easy to use, allows users to create reports quickly, and helps businesses stay organized by tracking expenses and invoices in one place. QuickBooks comes with a variety of features, such as:

  • Invoice creation that can be automated - learn how
  • Payment tracking
  • Integration with other programs like Excel
  • Customizable reports

One of the most critical features of the best accounting software for a small business is its ability to integrate with intelligent process automation tools such as InvoiceAction.


Among the best small business accounting software, FreshBooks is another popular choice. This software package is designed specifically with small business owners in mind. The system offers a variety of features to keep track of clients and their payments, including:

  • Invoicing
  • Expense and time records and control
  • Client management

Additionally, FreshBooks makes it easy to accept payments online through credit cards or PayPal integration.


Xero is an award-winning cloud-based best accounting software for small business that provides real-time financial visibility while streamlining processes like payment tracking and reporting.

Xero also integrates with over 500 other applications, such as PayPal and Stripe, for easy online payment processing. Xero also offers mobile apps to access your data from any device.

Final Thoughts: Finding the Best Accounting Software for a Small Business

In selecting accounting software for your small business needs, it’s essential to consider what features are necessary for running your business smoothly and efficiently.

Fortunately, there are many options available that offer different levels of functionality depending on your specific requirements. QuickBooks, FreshBooks and Xero are three of the most popular solutions today.

Without the best accounting software, small business will fly blind. Ultimately, finding the right product will depend on your individual needs and preferences and the size and scope of your business operations.

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Small Business Accounting FAQ

Why is accounting needed for a small business?

For the small business owner, understanding accounting is crucial to the success of your enterprise. You can keep track of your money's source and destination by using accounting. It also lets you determine if you are making a profit or taking a loss based on your resources, investments and expenses.

When it comes to accounting, small business software should manage several critical components, such as:

  • Listing all your income, both from customers and investments
  • Tracking expenses related to services or raw materials used in sold products
  • Budgeting for company needs, including employee salaries
  • Document filing requirements and taxes

Initially, while this data can be tracked manually, this process is costly and prone to errors. Instead, we advise investing in accounting software as soon as possible for greater accuracy and easier legal compliance.

Can I do my business accounting myself?

The more complex your business and finances become, taking care of all your accounting yourself may no longer be a feasible option. If you are just starting out with a small business and want to save money without sacrificing accuracy, then doing your own accounting could be an ideal solution.

However, if you have a medium-sized to large business with multiple streams of income and expenses, then going it alone might become overwhelming quickly.

While DIY accounting is possible, you should use caution when choosing this path to ensure that all necessary details are captured. Consulting a professional accountant could help set up a more organized system involving the best accounts software for small business. This would allow you to track and manage your small business finances right from the start.

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