What the books on running a small company don't tell you

There are a couple of great books on running a small software company. If you're based in Ireland, there are some OK books to help you with the mechanics of starting and running a company. However, none of these books more than touches upon something that has taken up a painful amount of my time since the start of the year: bookkeeping. In itself bookkeeping is simple – if you're reading this, you're probably able to program a computer, so you should be able to put entries into a journal in your sleep. However, over the last few hundred years accountants and tax collectors have come up with a large set of rules about how things are done around here, and they aren't very good at explaining them to us mortals.
While I can't vouch for the general quality of the series, I found Bookkeeping for Dummies to be useful enough that I now think I understand enough not to end up fined for breaking the law. I'll share a few things that might not be immediately obvious:

• Accounting software is complex, and you'll get upset at how little you understand what's going on for the first few days. I'm using Sage Instant, but all accounting software is pretty much the same. The key to understanding it is that there are basically three big databases. First is your nominal ledger, which is made up of lots of accounts that can each be debited and credited (see below). Because computers are good at searching, you probably won't find separate journals of original entry as you would in a paper system. The other two databases are of customers and suppliers. Everything else in the system is either a tool to help you add debits and credits to your accounts, or a report drawn from those accounts.
• Debits and credits don't mean what they mean on your bank account. Depending on what type of account you're looking at, a debit can increase or decrease the balance. Thankfully, there is a very simple pattern to it and any book will have a cheat sheet, but don't expect your accounting software to give you any help when you do things manually.
• Prepayments are going to be how you pay for a lot of your overheads (costs that aren't directly tied to the manufacture or sale of a specific product – pretty much every expense in a software company). If you pay in advance for a domain name, support contract or similar, you are invoiced immediately, get refunded the VAT at the end of the period of the invoice (assuming you are using accrual-based accounting), and probably pay at the same instant as the invoice (albeit with money temporarily borrowed from a credit card provider). What you've paid for isn't an immediate expense – you've actually bought an asset (actually a debtor) called a prepayment, which you the chip away at over the next year as you use the service you paid for. Your accounting package probably has a way to set up recurring nominal ledger entries to transfer money from the prepayments account to the relevant expense account.
• Accruals are almost the opposite of prepayments; if you pay for an expense in arrears (like a phone bill) you have to guess how much it will cost for each accounting period (read: month) and post that as a special type of expense called an accrual. When you get the bill, you need to do some adjusting entries to sort everything out. I haven't done one of these yet.
• Paying for stuff yourself is almost certainly going to happen in the first few months of running you company, and when you have employees it will happen all the time. I couldn't find much about how to account for this, so I set up a pretend bank account in the system call “Employee reimbursements” and use it to pay the invoices that I paid for myself. I then transfer money from the real bank account to this account to represent paying myself back. One thing to watch out for is importing – if you don't give your VAT number when buying from another EU country you have to claim the VAT back from the government of that country, which is not going to be easy. There are companies that do this for you for a percentage.