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recording of transactions yourself, a number of good software packages are available for less than $200, which makes record keeping and accounting easier and faster. Before you buy, ask colleagues what they are using and what they like and dislike. Ask your accountant. Check out reviews in computer and smallbusiness magazines as well. Tracy's book points out your records should cover the five basic areas: cash inflow, cash outflow, inventory and purchases, payroll, and assets. If you handle the bookkeeping adequately in those areas, you'll find it easier to go beyond record keeping and start making informed business decisions. Cash Inflow You should be recording and identifying all cash received from customers and other sources. Ensure the money goes to the correct bank account and balance that account each month. Alternatively, you could use the accrual method of accounting, which involves charging income and expenses to the period in which they were supposed to be charged. For instance, if you performed some work last month for which you won't be paid until next month, you would record the expenses and the expected payment on last month's ledger. If you owe an employee for work done this month, but you won't be cutting the check until next month, you record the expense this month. Businesses that keep an inventory of goods use the accrual method. Cash Outflow As you pay the rent and utilities, repay business loans, buy professional books and supplies, and hire the occasional accountant or lawyer, keep complete and accurate records of what you spend, noting what you bought, where, when, and why. Keeping good records of cash outflow will help you at tax time and protect you if a legal dispute arises. Inventory And Purchases You should be tracking the goods you buy for the business, including supplies. If you stock lotions or training tapes and manuals, you'll need to note what you bought, when, how much you paid, and why you bought it. Keep similar records of supplies—postage stamps, paper, computer-related goods, and the like. Payroll If you have employees, you will need to keep track not only of their wages, but also their income tax, social security, and other taxes collected by federal, state, and local governments. Assets Finally, keep careful track of fixed assets, including furniture, computers, vehicles, and other property owned by the business. At tax time, you'll depreciate the value of the assets. Depreciation is a method of spreading out the cost of a fixed asset over a period of time. The straight-line method of depreciation, usually simpler and preferred for smaller businesses, allows you to deduct equal amounts of the cost of an item (such as your massage table) over a period of years. Your business accounting software most likely can do this automatically and will determine how many years an item should be depreciated. The accelerated method can provide more substantial tax benefits early in the life of the item, but is usually used for larger organizations with substantial fixed assets. Therapists usually don't have huge amounts of depreciable assets, but every little bit can help reduce your tax liability. Financial Reports In the course of these bookkeeping tasks, you're paving the way for preparing and reviewing three key financial reports. The accuracy of these reports will hinge on the accuracy and completeness of the other records you keep. Financial statements aren't prepared for the sake of record keeping; rather, they will help you pinpoint financial trends and problems. The data will help you make better decisions about inventory, fees, taxes, and other vital issues. Profit and loss. Income statements (also called profit & loss or P&L statements) show sales revenue and operating costs for a month or other period of time. These figures can help you measure the economic performance of your business for the accounting period. Most businesses prepare an income statement monthly, quarterly, and annually. When analysts examine a P&L statement, they use key financial ratios to get a picture of what's happening. Among the ratios they