Accounting for the modern world

Before the advent of online bookkeeping software such as Xero and Kashflow, businesses were responsible for keeping track of daily expenses and then would hand that information over to their accountant at the end of every year. The desktop software used to do bookkeeping was very expensive and time consuming, meaning this cost was passed on to clients. On top of this, the client had no insight into their bottom line profits until usually six months after their year end.

New cloud based online software has completely revolutionized the way accounting works, meaning your bookkeeping is largely automated saving you and your accountant time meaning costs are lower. As your information is visible in real time, you can see how your business is performing and your accountant can provide you with advice and tax saving tips on a timely basis.

Key to success

How the cloud changed everything

In the past five years the cloud has completely changed everything about accounting. Information is now easily transferred from the client to the accountant with the use of the cloud in real time. Accounting can now be done simply through either a laptop computer or even a smart phone, and certain cloud apps allow you to track your daily expenses by linking with your bank account so you can quickly share them with an accountant. This has significantly reduced the cost of bookkeeping and created an easy to use format for both clients and professionals. In fact, most accountants charge a low rate for subscription to software that makes bookkeeping much easier for both parties.

E-Commerce and accounting

Small businesses are now using the Internet to conduct most of their business. Sites like eBay, PayPal, and Amazon have created entirely new ways of conducting business that in turn leads to more complex tax legislation as often sales are worldwide. However, there is no need to overcomplicate the basic structure of e-commerce accounting. Here are a few basic tips you can use to properly account for fees and sales generated through the Internet:

  • If you make sales or purchases in multiple currencies via PayPal, you do not need multi-currency accounting software to manage transactions between PayPal and your UK bank. You simply need to post the GBP equivalent amount into your online accounting software. Foreign currency transaction charges and costs don’t need to be presented separately as often they are just embedded in the rate of exchange.
  • Monthly statements that reflect eBay and Amazon sales and returns over the previous month will suffice for basic accounting information. Simply obtain a summary of transactions through your sales management interface and post it to your online bookkeeping software. Contrary to popular belief, it is not necessary for each and every transaction to be entered into your bookkeeping software.
  • Sales fees and commissions need to be presented separately to sales. Often payments from Amazon and eBay automatically deduct fees and commissions before payment (i.e. it is paid net of fees and commissions). However, for accounting purposes you need to present your sales excluding fees and commissions and then reflect fees and commissions as relevant costs. This is particularly important if you are close to reaching the VAT threshold as otherwise you may be unlawfully trading above the VAT threshold without registering, potentially risking substantial fines and penalties.
  • Returns should be presented separately to sales. Again, Amazon and eBay often automatically deduct returns from sales. However as with fees and commissions, these should be presented separately. If you are VAT registered, the output VAT element of any returns does not have to be paid to Her Majesties Revenue and Customs.

Accounting in the modern world involves up to date understanding online bookkeeping tools such as Xero and Kashflow combined with a sharp understanding of accounting standards and tax legislation. If your accountant can demonstrate a good understanding of all of these, then you can be assured that you’ll receive a cost-effective and compliant accounting service that will keep you on the right side of the law.