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Text File Book Keeping [Finance
Posted on March 20, 2020 @ 08:41:00 AM by Paul Meagher

How do you manage your books? Many people use accounting programs like Quicken that offer a broad array of useful accounting functionality. Some people like to use a spreadsheet to manage their books. Me, I generally use a text file to manage my personal, sole proprietorship, and partnership books.

Every year I try to improve my book keeping systems. Last year I tried to get into the habit of using an accounting program for the farm partnership which never really got traction. In part it is because there was quite a bit of learning to setup the company and then I needed to log in regularly to keep the books updated and that just never happened.

This year I thought I would move to using a spreadsheet program and take advantage of some of the calculation and reporting capabilities of the program. My corporate accountant likes to put all the transactions of my corporation into a spreadsheet to model the company and generate reports from this model. This inspired me to think about doing the same for the farming venture.

I got my spreadsheets and categories setup to be able to efficiently enter all my bills and started entering some bills. Not being a regular spreadsheet user I found it cumbersome to do data entry compared to updating a text file. My accountant exports transaction data into his business spreadsheets which is not the same as having to enter each transaction individually into your books. Ultimately, I got hung up on the spreadsheet approach because it seemed like there were extra steps involved in moving dated entries around when you found a dated entry that fit between existing dates. This happens all the time with the sorted monthly lists of paper receipts that I have to enter.

Yesterday it occurred to me that I am going back to my old text file accounting approach because I believe there are still ways to improve upon this basic approach. I thought I would share with you some of my thoughts on how I intend to do so. I am not advocating this particular approach for everyone as everyone has their own skills and preferences. Because I have programming skills and regularly use a powerful text editor (Ultraedit), this approach seems the most natural to me. Also, this approach is for personal, sole proprietorship and a 2 partner business ventures (the farm). For firms with more employees and more volume, it is likely not feasible.

In a nutshell, what I realized is that if I pay more attention to how I structure my accounting text files that this opens up the possibility of developing programs to read the file and display the contents of those files in organized, editable lists with nice reports. I could potentially have the best of both worlds: easy to update text files of expenses and income and programs I can incrementally develop to read and display them in various ways including adding, deleting and updating entries though a web interface.

Am I recreating the wheel here? Yes, but the job doesn't appear to be that difficult compared to the time I would have to invest in mastering somebody elses software or approach. Opening and parsing through text files is not a big deal when the text file contents adhere to a structure, which they already do, but I realize now it could be better if I want programs to read them. If you are a programmer it is not a big deal to develop a program that reads through structured data and visualizes the data as, say, lists of expenses by category with tax and cost totals for each category of expense.

What about all the nice data entry features that a spreadsheet or accounting program has? Alot of these features are unnecessary for the main task that I have to accomplish which is to fill out a Statement of Farming Activities form with numbers in the various provided slots - how much on was spent on fencing, how much on plants, how much on machinery repair, how much on fuel, how much on small tools, how much on office supplies, how much on legal, etc...

A text file editor like Ultraedit has alot of powerful features that spreadsheet programs and accounting programs do not have. I can, for example, have visually aligned columns of numbers and can use my cursor to create a selection around that column of numbers. I can then select a column function to compute a sum from the selected numbers. I then enter that number below the column as the sales tax or cost total for that expense category. Alot of what you do in a spreadsheet is column processing. Ultraedit also has good column editing features that allow you to select and sum a set of vertically aligned numbers.

Accounting can get pretty complicated and text file accounting might be one approach to manage this complexity. One area where things can get complicated is the Revenue Recognition Model that different accounting standards use. The Revenue Recognition Model for one accounting standard may allow you to mark everything paid as revenue. If that payment is for a contractual obligation over a term then the IRFS standard would require you to only record part of that payment as revenue and allocate parts of the payment to, say, different months of the contract. The argument is that you don't inflate revenues by doing things this way. The redistribution of a payment as earnings over several months is the type of job a programming language is made for. Text file accounting can be a very simple and a very powerful approach to accounting.

Most people who are not accountants do their accounting by creating lists of numbers representing their income and expenses. They might categorize those lists if there are many invoices to deal with. If you want to continue doing your books in this way while making ongoing improvements, then I believe you can do so by keeping these 2 steps in mind:

Step 1) Make sure your lists are entered in a structured way that a computer program might be easily able to read.

Step 2) Use a computer programming language to read these lists and display them. As you gain experience doing this, you may find better ways to structure your lists (i.e., go back to Step 1).

I still hire accountants to review my corporate books but I do my own accounting for my personal, sole proprietorship and partnership businesses (the farm is a partnership with my wife). Every year I devote a blog to how I intend to improving my accounting system and this year it involves Step 1 and Step 2 above. If you are a larger business with multiple employees then I wouldn't recommend this approach but if you are small startup looking to save some dollars by managing your own books then this approach might work for you as well until such time as you have funds to invest in accounting software and expertise.

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