Lab

Accounts Software

Spending money has never been so easy. You can swipe, chip'n'pin, or even pay using your mobile phone. And thanks to Internet shopping, there's nothing to stop you shelling out a fortune without ever having to leave your chair. Progress, eh?

The more routes your money can take out of your pocket, the harder it gets to keep track of your finances. And with the average UK household now spending a fifth of its disposable income just in paying off its debts, just crossing your fingers and hoping the hole in the wall keeps paying out is probably not a good long-term strategy.

That's where accounting software comes in. It may sound boring and complicated, but in fact the latest programs can make everything remarkably simple. This month we've tested six of the most straightforward options for everyday budgeting or small business bookkeeping, including a brand new program from Microsoft that you can get for free. That sounds even more financially prudent.

Automatic cash machine

The prospect of totting up endless columns of figures, only to find everything doesn't quite add up at the end, is a powerful disincentive to taking control of your money. But a good accounting package will do the sums for you.

Each time you run the software, the first thing you'll usually see is a summary of your financial assets and liabilities. To arrive at this, you just need to enter details of what you earn and what you spend as you go along. By adding other relevant information, such as interest rates on your accounts and loans, regular and predictable expenses and so on, you can largely automate the process of keeping everything up to date and balanced. The program can tell you how much your various financial assets (bank accounts, ISAs, pensions and so on) are worth at any given time, and predict any cash flow problems that may crop up because of recurring bills.

Good accounting software will also create reports based on criteria you specify. For instance, a home accounting package might show you how much you've spent on different types of products and services, helping you trim your budget.A small business accounting package, on the other hand, might show you transactions per client or the profitability of certain products or accounts.

Another key difference between home and small business accounting software is the method used to keep track of your money. Home finance software usually just keeps track of real assets such as bank accounts, credit cards and loans. Small business software, on the other hand, uses a system called double-entry bookkeeping. As well as tracking real assets and liabilities, such as those already mentioned, this tracks notional or 'nominal' accounts. Each nominal account represents a logical category of income or expenditure, and a debit in one nominal account must be matched by a credit another account.

For instance, when a business buys £1500 worth of goods, it might debit its Costs account £1500 but at the same time credit the Stock account with that amount. The aim is for the income and expense accounts, taken together, to have a zero balance. If you're not already familiar with double entry, it isn't as complicated as it sounds, and is quite logical once you get used to it.

This month we tested seven home and small business finance programs, including Microsoft's brand new Office Accounting product, so you can see which will suit you best.