At first glance, you might think accounting systems are the main type of software that keep you using Windows systems. QuickBooks, Peachtree, Microsoft Money, and Quicken all run on Windows, and not directly in Linux. These programs have certainly captured the market for financial software for small businesses. Slightly larger businesses opt for expensive enterprise accounting systems such as Great Plains, MAS 90, and Lawson. These programs require extensive customization to make them work for a particular business. A few open source systems have emerged to provide compelling alternatives to proprietary accounting software. These systems are beginning to surpass the proprietary offerings in terms of features, customizability, and flexibility.

What to Do with Your Accounting System
Different businesses have different accounting needs. Many businesses carry an inventory. Manufacturers need to correlate parts in their inventories to the final assemblies. Service-based firms need to track billable hours. Businesses with employees have to keep a payroll system. All businesses need some system for billing, receiving payments, making payments, tracking their income, and reporting to tax authorities. Many businesses need to manage invoices and customer statements. If your business is a small independent consultancy, your accounting needs are much different than those of your client, a medium-sized manufacturing firm. If you operate a retail store, you have much different accounting needs than your attorney's law firm. The best accounting package for your business depends completely on your needs. Open source accounting packages have become compelling alternatives for all but the most consumer-oriented accounting programs. The single biggest advantage offered by open source accounting packages comes from the fact that they're open source - they're easy to customize to fit the exact needs of your organization.

Double-Entry Accounting
When you balance your checkbook, you probably keep a simple record of what check you wrote, to whom, for how much. Your personal financial records are probably not much more than a simple checkbook register for each account. Personal financial software, such as Quicken and Microsoft Money, lets you categorize each purchase into standard categories, allowing you to reconcile statements, create budgets, and see where you spent your money.

What you can't do as easily is keep track of payments owed to you, or bills you owe but haven't paid. If you carry an inventory, the IRS requires you to report your business income on an accrual basis: you report what you have billed, not the cash you actually received. To account for the difference between when you generated an invoice and received the cash, bookkeepers use a system called double-entry accounting. With double-entry accounting, every expense has its own account, and every transaction must appear on two different accounts: the debit account, and the credit account. Credits are amounts you owe, while debits are amounts owed to you. This is the reverse of what you hear from the bank teller - when a teller credits your account, the bank is adding to the amount it owes you. From your point of view, your account has been debited - the amount owed to you has increased.

Cash vs Accrual Accounting
When it comes time to report your earnings to the IRS or your country's tax authority, you generally need to either use cash-based or accrual-based reporting. When you use cash as the basis for your accounting, you report exactly how much cash you have in your accounts. You don't report bills you've sent or received that aren't paid. With accrual-based accounting, you report income based on when you create or receive a bill. If you have an inventory, the IRS requires you to use accrual-based accounting. Otherwise, it's up to you. To be able to do accrual-based accounting, you generally need to do double-entry accounting.

Payroll
While there are a few payroll modules available for open source accounting packages, for the most part they require substantial customization for your location. For most small businesses, the best ways to manage payroll are to either outsource it to a firm specializing in handling payroll, or purchase regular payroll updates for your location for the proprietary accounting packages (such as QuickBooks and Peachtree). Lack of adequate payroll processing is perhaps the biggest shortcoming of the open source accounting packages. On the other hand, if you have a payroll expert on staff, it's relatively easy to customize the open Source software to set up the appropriate rules.

Generating Invoices and Orders
Many businesses need to generate invoices or bills in order to get paid. Many customized timesheet programs have built-in invoicing capabilities. Many office applications include templates for invoices and receipts. What's the best way to generate invoices?

If you report earnings on an accrual basis, it's easiest to use accounting software to create your invoices. The instant you create your invoice, the amount is added to your Accounts Receivable account, which indicates the total amount owed to you. When you receive payment, the accounting software automatically credits the Accounts Receivable (deducts the amount) and debits your bank account (increasing the amount). Of course, if the payment is not electronic, you still have to take it to the bank.

Even if you report income on a cash basis, about the only reason you might not want to create invoices in your accounting software is if you already have another system that works well for you, or your accounting system isn't capable of generating invoices - or if you need to be able to generate an invoice without access to your accounting system.

Keeping Track of Inventory
A big part of accounting for manufacturers, distributors, and retailers is managing inventory. Inventory is simply a total count of each item a business has that it intends to sell to others. Tracking your inventory is no easy task. Exactly what you need to track varies by your location, but generally you need to be able to report on:

• Your cost of purchasing the items, or the parts that go into the items
• The number of items you have on hand
• The number of items converted to business use instead of being sold
• The number of items lost or damaged without being sold (called shrinkage in the retail industry)

Online Transactions
More and more businesses are conducting transactions online. When you look at accounting software, some of the commercial packages mention the ability to do online banking. What this generally means is that you can download statements and transactions directly from your bank into the software, saving you the time of entering them manually. This type of feature is more about keeping your books reconciled with the actual balance in your accounts, and is most useful for the smallest businesses that don't have a bookkeeper.