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Using computers to monitor finances

By Michael S. Jackson, C.P.A.

The computer has come of age. It is now a necessity in most work places and becoming of greater importance in the home. Ideally, the computer should be used as a tool to reduce the time you spend performing tasks you performed in some other way and to possibly do them better. One area in which the computer has made a vast improvement is in the area of finance—both business and personal.

From a business perspective, the days of maintaining manual billing and expense records are gone. Many software packages can be used to automate your entire practice in one program. At the same time, the software developers are continuing to design programs with the end user in mind. With finance software, the person entering the bills to be paid and collected may not need to be as astute in the area of accounting as they may have needed to be in the past. Several products provide an interface for the user that looks very similar to their check book. Despite its simple appearance, the owner of the practice will be able to get very detailed reports and save many hours when it comes time to prepare their tax return for the year.

When you look for a business or personal accounting package, make sure that it will perform all of the tasks you would like while maintaining a good sense of usability. A good software package will have on-line help with the click of a button. Some will even provide detailed help and suggestions for specific types of businesses. Be sure that additional help is also available by phone directly with the software vendor. You may want to check to see if classes are offered by a local computer store or if there is a book written specifically for that software which can help the user get over the minor bumps in the road.

Most business and personal finance software programs tend to leapfrog each other in terms of features. A feature available only in software A this year will almost always exist in software B, C and D in the near future. If you were to review the products individually, most would contain everything you could possibly want, many features you will never use and several which you may not even understand what they are. To help you in your pursuit of business or personal finance software, the following is a summary of features and what they can do for you.

Method of Accounting. Business finance software will allow the practice to be shown on either a cash or accrual basis of accounting. Most will allow you to enter your basis of accounting using either method, but only a few will allow you to switch back and forth. This could be useful if you are operating on the accrual method and would like to see precisely where the practice’s money is going. The cash basis would help you determine this. For personal accounting, this area is not usually an issue, since 99.999 percent of individuals operate on the cash basis.

Accounts Receivable. For medical practices, this function monitors the payments which are owed by the patients. Business finance software should allow the practice to create a patient register to keep track of charges to a patients account and any payments. Some packages will allow the practice to print invoices or other patient statements. Important patient information can also be recorded in the program and is easily retrieved when needed.

Accounts Payable. When a bill arrives in the mail, does it get tossed into a pile of other bills to be paid at some future date? One nice feature of finance software is that you can enter a bill as soon as it arrives and have the program alert you when it is about to be due. No more missed payment dates or embarrassing phone calls to the electric company!

Check Writing. If you are tired of writing checks by hand, you can now just put a specially designed check into a printer and all that is left is for you to sign it. This also helps to minimize errors that occur when writing checks by automatically recording the transaction in your check register.

Payroll Checks. Payroll made easy? Probably not, but how does easier sound? Most programs will maintain your payroll records, track sick and vacation hours and print your quarterly and annual federal tax forms. If you pay your employees on an hourly basis, you will need to input the number of hours worked during the pay period. The program will then calculate all of the applicable taxes to be withheld, set up the liability for the taxes to be paid and deduct the net pay check from your account.

Reports. The importance of accounting lies in the information it can provide. With this information, business owners will be better able to run their practice and make decisions for the future. All programs have predefined reports such as income statements and balance sheets. Some will even provide reports which will make it easier for you to prepare your Form 1099s for your vendors. Look for the ability to customize your reports so you can get the information you need in a format you like.

Online Banking. How important is it to you and your business to have access to your bank account information at any time? Do you want to be able to transfer funds from one account to another within the same bank? Essentially, online banking gives you the benefit of having an ATM machine right on your computer (with one obvious exception you can not print cash).

Online Bill Payment. Many banks currently offer bill payment by phone. Get ready for paying bills by your computer. This feature is currently offered by many banks to its personal accounts. By the end of the year, we may see this offered by a number of banks to its business customers. The user will write all of the checks to be paid on the computer, dial a special phone number using a modem attached to the computer, input a personal identification number and the bill will be paid by the online processing center on the date you want. This also cuts down on the number of stamps you and your business will use and gives your practice better use of its money.

Balancing Your Checkbook. If you despise the day that the bank statements arrive in your mailbox or if you just ignore them altogether, you can now automate the reconciling of your bank accounts. It is as easy as entering your ending account balance according to the bank and then clicking on the items that cleared.

Preparing Your Tax Return. By setting up accounts to monitor important tax return information, you will not be rooting through canceled checks on the night of April 14 in order to find the check for the contribution to your favorite charity which you made in January of the previous year. You can maintain expense accounts and print preformatted reports which will show you your medical expenses, taxes paid, mortgage interest and contributions for the year. By tracking your items of income and expense throughout the year, you can project your tax bill (or refund) for the following April 15 at any time and be able make informed planning decisions to cut your taxes.

Loan Balances. You may not understand how your mortgage or car payment is applied against principal and interest. Personal finance software will show you numerically or graphically how your payment is applied and can detail the interest saving effects of extra principal payments or paying off your loan early.

Investment Monitoring. If you dabble in the stock market or invest in mutual funds, you probably like to keep an eye on your gains or losses. Several packages will allow you to set up an investment and monitor your cost basis, gains, losses and rate of return. Some packages have a feature which will download current prices automatically (usually for a fee). Otherwise, you can enter the prices manually from the business section of the newspaper.

Budgeting. This is a nasty word to many people, but it can play a vital role in saving for the future. All software packages let you input your personal budget and can generate reports and graphs which will show you how you are doing in comparison. Setting up a budget should begin with a review of your expenses over the last year to see where you have spent your money. Using that information, plan your expenses for the next year and see how close you can get to your savings goal. Budgeting can also be helpful in planning for large expenditures such as weddings, vacations and education.

Financial Planning. Many software vendors are now integrating rudimentary financial planning tools into their programs. While these may be used to answer simple questions regarding college or retirement funding, be cautious. As with any computer program, the information you receive will only be as valuable as what is input.

Most finance software should be adequate to perform the intended tasks. The benefits will also lie in the tasks which the programs can provide for which you did not consider initially. Although maintaining your finances on computer will take some adjustments to the way you normally handle your money, you should obtain a better understanding of how your money is earned and spent and save many hours from doing the tasks manually.

Michael Jackson, C.P.A., a principal with the Philadelphia-based firm, Martin J. Satinsky & Associates, P.C., is a certified public accountant with special expertise in personal financial planning.

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