If you’re a small business, the answer may well be:
But more correctly, you are probably using one of the low cost cloud accounting packages designed for small businesses and you’re now wondering why this blog is asking such a stupid question.
Simple revenue and cost accounting (based upon direct cash-flows only), sometimes known as cash-book accounting, is not accounting in the sense your accountant would use the word when he or she is preparing theirinvoice.
They’d be interested in your suspense accounts, whether your period ends are fully accrued; whether you only recognise revenue at the point it has been earned; whether your costs are only recognised once title has passed; whether you recognise both over the life of a contract commitment etc.
Not taking revenue on day one while spreading costs (to make the business look better than it is) or vice versa, spreading out revenue while expensing all costs (to reduce corporation tax) are both a breach of accounting standards and are not be permitted in a year-end submission. In some cases the practice may even be illegal.
If you don’t care about monthly P&L, you may be happy with your simple cash-book approach and let the accountant sort it all out at year end. Perhaps you don’t believe you have any material un-earned or un-costed cash-flows anyway and that may be fine, assuming it’s true.
However, as you grow, this issue will become more significant and as the flows become larger, getting any accurate monthly P&L is key to survival, borrowing, growth, investment and valuation at exit along with many other key business-related issues.
So, how can your PSA help solve this problem?
Well, the answer probably is, not in the least…...
The vast majority of PSA systems on the market are cash accounting tools. They generate invoice and payment events without any understanding of accounting rules.
In the old monthly break-fix world that they were designed to support, this worked fine as you only invoiced the work you did in the month. However, the emergence of block-hours contracts, term agreements and milestone-based project work have changed all this. The problem is the PSA tools haven’t kept up to date - they haven’t changed at all.
Harmony is the only full service PSA with in-built automatic balance sheet accounting. Its view of your monthly P&L is always right, without you (or your accountant) needing to do anything at all. This is as it should be. After all, you trained in technology, not accountancy...
About the Author: Harmony Business Systems Ltd (HBS) is the company behind HarmonyPSA, the most complete cloud PSA software on the market. Developed with functionality to cater for even the most complex needs of MSPs, VARs, ISVs and Professional Services organisations, HarmonyPSA truly is the next generation of PSA systems. HBS is an independent company based in the UK. Follow HarmonyPSA on Twitter or LinkedIn