Setting up a check-book system - using Microsoft Corp.'s Microsoft Money accounting software - Hassle-Free Bookkeeping - Tutorial

Home Office Computing, April, 1992 by Stephen L. Nelson

Suppose that you run a one-person business, Square One Computer Consulting. Like those of many service-based operations, the bookkeeping requirements of your business are pretty basic: You prepare a handful of invoices each month and write a similar number of checks. What you're really looking for is a simple way to measure your income and expenses--for planning and tax purposes--and to keep track of your bank-account balance.

Suppose that after looking at all the alternatives, you choose the new Windows-based checkbook program, Microsoft Money. While this program won't prepare invoices--none of the checkbook programs will--you decide you can easily do that with your word processor, spreadsheet, or database.

To set up your own financial records using a checkbook program, follow these basic steps:

Step 1--List income and expense categories. The first thing you need to do is list the categories you'll need for tracking income and expenses. Probably the easiest way to do this is to look at last year's tax return and make a note of each income and expense line on the tax form (probably Schedule C) that you filled in. For example, if you only used one income category--gross income--and three expense categories--bank service charges, office, and taxes--you category list will include at least those four items. In addition, you may want to define new income and expense categories if you anticipate needing them in the future. Figure 1, for example, shows the Microsoft Money Category List dialog box.

Checkbook programs also let you budget by categories. So if you're someone who wants to use a formal budget and then periodically compare your actual income and expense figures to the budgeted income and expense figures, you'll want to make sure you include budget categories on your list. These might include expenses such as photo-copying or utilities and other income, such as from dividends or a second job.

Step 2--Add any needed categories. All the popular checkbook programs provide predefined lists of business categories, which you then use to track income and expenses. You will, however, need to verify that the internal category list that your program maintains includes all the categories you need. If bank service charges, office expenses, and taxes don't appear on your software's existing category list, you'll need to add them. With a checkbook program like Microsoft Money, this is simply a matter of entering the commands necessary to display the Create New Category dialog box (see Figure 2) and then filling in a few text boxes that name and describe the category.

Step 3--Enter checkbook transactions. Starting from January 1 of the year you install the checkbook program, enter all the checkbook transactions through the current date. While might be tempted to start entering transactions from the date you install the software, it'll be easiest to enter transactions from the beginning of the year. That way, you'll have the transactions for the entire year in one place and be able to produce reports that summarize the entire year's income and expenses. For the first transaction of the year, enter the starting account balance. Figure 3 shows the account-book window into which you'll enter transactions. (By the way, this process really won't take you very long. Even if you've got a couple hundred transactions, you should be able to enter them in short order, because doing so is very fast with any of the checkbook programs.)

Step 4--Adjust the account balance. If needed, enter an adjusting transaction so that as of the reconciliation date, the reconciled bank-statement balance and your checkbook program's balance agree. Now it's quite possible that you won't need to enter an adjusting transaction. However, if this isn't the case--and you know the reconciled balance is correct--you'll need to adjust whatever the checkbook-account balance shows.

Step 5--Start using the checkbook. Begin using the checkbook program to record transactions and, if you want, to print checks. As you go along, be sure to categorize each deposit as falling into an income category and to categorize each withdrawal or check as falling into an expense category. That way at any time you'll be able to summarize your business income and expenses. And you'll also have an accurate record of what's probably your most important business asset--cash. Figure 4, for example, shows an on-screen version of an income-and-expense report that you might use to gauge your profitability.