I'm Andreas Kambanis and I'm the founder of Nibble Apps. This blog is all about creating and launching successful apps.

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Accounting lessons learnt in my first year with FreeAgent

Choosing FreeAgent as my accounting software is in my “Best decisions I made in 2014” list. (It sits just after “creme and cookies icecream instead of cookie dough”.)

However, before I reached accounting nirvana, there were a few bumps along the way. I want to share these here with fellow FreeAgent users in case it helps save some headaches.

Automatic currency conversion

“Why does your Paypal USD balance in FreeAgent not match your Paypal statement?” it was one of those questions you get off your accountant and you throw your arms out in the air and shout: “Why me!”

Fortunately, it was an easy one to solve.

FreeAgent will automatically calculate the conversion amounts from GBP in to USD, if you have accounts in two different balances.

The problem is, Paypal has their own currency conversion rate. Therefore, the values don’t match.

If you just untick the box that says “Automatic Currency Conversion” and enter the USD value that Paypal gives you, you are good to go.

Capital introduced to business

But what happens if my friend owes me £100 and pays it in to my business bank account?

Initially I thought “oh well, that’s not a business transaction, so I’ll just delete it”.

Obviously, that was rather silly to say the least and will result in your accountant scowling at you as the transactions don’t reconsile with your bank statements.

You mark this, along with any other money introduced to the business, as “Capital Introduced”. Problem solved and you don’t end up paying any more tax than you have to.

Freelancers are subcontractors

This one I feel rather silly about, but I’ll share it as there may be other accounting newbies out there like me.

In FreeAgent, I was marking my freelancers as “Net Salary Expense”. Why? Because I didn’t know any better.

It turns out for payments to freelancers what I really had to use was “Subcontractor Costs”.

Opening balance as capital introduced

Inside FreeAgent you have the option of setting an opening balance. This created a suspense account which my accountant queried.

After a few emails back and forth, we decided that it would be easier to simply enter my opening balance for different accounts as capital introduced.

This removed the suspense account and kept the accounting clean and simple.

Overpaid invoices

Two of my advertising clients slightly overpaid their invoices. For this I consulted advice in the FreeAgent Community Forums and marked them as Other Money In > Receipt into Contra Account.

There are two things I really love about FreeAgent:

  1. It gives you an accurate estimate of how much tax you owe, so you don’t get any nasty surprises.
  2. I find it amazing that for just £18 per month, I get helpful support staff that are just a quick email away.

Whilst the mistakes did end up costing me in both my own time and my accountant’s time, it’s nice knowing that next year’s accounts will be much simpler.

I hope this article helps you with your accounts, just always remember to consult an accountant as your circumstances may vary from mine.

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