Accounting for Startups

Crikey, they make that all sound way more complex than it is.<p>I started a company very recently (my first), and after doing a little research I opened an account with Xero.<p><a href="http://www.xero.com/" rel="nofollow">http://www.xero.com/</a><p>I'm in the UK and Xero works perfectly for me and makes everything really manageable. Reconciliation of bank accounts is built in (can even autosync with HSBC), reporting is built in, invoicing and payments received it built-in, everything including asset depreciation.<p>Yet it's:<p>* Web-based<p>* Has accountancy firms behind it (makes audits very easy)<p>* Very simple to use with great support and help (stuff like this article's content was a no-brainer)<p>* Shareable... give your chartered accountant access!<p>I have no connection with Xero at all, but since they've made pleasurable one of the aspects of starting a business that I feared I would and am heartily recommending them to UK startups (I don't know if they're set up for US, do your own homework).

I've made the mistake of accrual accounting when not needed before. The current company I own for does cash based accounting, and wow, what a difference.<p>Accrual is easily 5 times the work for many types of businesses than cash is. You have to touch the books twice for <i>Everything</i>. Things you'd only do as an afterthought in cash you have to make into a careful ordeal.<p>To quote one accountant: Until you can afford a full-time bookkeeper, why are you thinking about doing accrual? (at 5 million revenue you have to swap to accrual or $1 million revenue and hold actual goods in inventory).<p>If you're worried about your ability to do projections, I'm honestly going to say that cash basis is much closer to your actual resources on hand than accrual.

<i>If you get a huge purchase order from a new customer, that would show as income</i><p>This is NOT true.<p>A purchase order is a promise to buy, nothing else. It does not become income under <i>any</i> accounting method until you actually invoice that customer. That normally occurs when you actually deliver products or services to them.<p>Once you invoice that customer, it is considered income using the accrual method <i>whether or not your customer pays their bill</i>. It only becomes income using the cash method when they actually do pay the bill. I imagine that's the distinction OP was trying to point out.<p>Moral of the story: for accounting advice, seek an accountant, not a blog entry posted on hn.