Today many business owners run their own accounting systems. There have been many of these over the years you can read about accounting systems here. The point here is not to focus on particular systems but to explain the way they have changed accounting in the real world.

Accounting systems seem to offer the opportunity to business owners to do away with accounting fees. This seems even more common among users on newer internet-based (cloud-based) systems. In practice, the cost of this is errors of too many types to go into here. Some of the errors have no real effect. For example, if bank fees are coded to general expenses there generally won't be a problem - as long as the differing GST treatments are recorded correctly. But many other issues can have serious financial penalties - if and when found by IRD. Having seen examples in the real world of such mistakes having drastic and even fatal (to the business - not the owner) results, this honestly scares me.


Another surprising issue is that some people mix and match. The may try using a cash book for accruals, or they may use an accounting system like a cash-book. The two are fundamentally different - although some cash-books allow the use of accrual entries. In a cash-book, you enter in what shows on the bank statement - payments and receipts. Everything else is left to the accountant. In an accounting system, you enter all invoices and bills. They are the prime documents. They are paid and when bank statements are reconciled, all that is left is the sundry amounts like rents, bank fees, etc. Often these can be set up as automatic transactions so there is little extra needed.


The point is the two systems start from different sources. With a cash-book, payments are coded to the expense. In an accounting system, the payment is simply a reduction of the account (payable or receivable). The coding is done on the original invoice.


So please make sure your practices reflect the system you choose. And if you want to do it all yourself, make sure you choose a full ledger rather than a cash book. And if you do have an accounting system make sure the accountant's changes are fed into your system (before roll-over if that is part of the procedure required by your system. That way the closing point used in tax returns matches the opening point in the new year. It sounds simple - but failing to do so causes problems in the following year.