Do You Know the Difference between Bookkeeping and Accounting?
When most small business owners think of the terms bookkeeping and accounting, they often use them interchangeably. While it’s true both bookkeeping and accounting are important in the management of your company’s finances, some key differences between the two functions do exist. Therefore, business owners need to understand the roles of each and how they work together to ensure your company’s success.
When running your business, your ability to grow and succeed is often dependent on how organized your financial records are. But managing your business finances is more than just recording your financial transactions and balancing your checkbook. For your business to flourish, you must be able to access and use your company’s financial reports to develop a workable business strategy. While both bookkeepers and accountants handle your business’s financial information, they perform different tasks within your company’s financial cycle.
The Function of Bookkeeping
Bookkeeping is comprised of the tasks required during the first part of the accounting process. It involves the consistent, timely, and accurate recording of a business’s financial transactions in chronological order. A bookkeeper’s duties include:
- Maintaining a complete and organized set of books, comprised of the general ledger and all subledgers (i.e., fixed assets, inventories, accounts receivable, accounts payable, cash, tax, costs, and sales) in which to post financial transactions.
- Creating and issuing customer invoices.
- Recording suppliers’ invoices.
- Paying suppliers.
- Logging cash receipts from customers.
- Documenting inventory changes.
- Processing employee payroll.
- Managing petty cash transactions.
- Preserving all supporting documents for all business transactions.
A bookkeeper follows a specific set of procedures to perform these duties on a repetitive basis. The complexity of a company’s bookkeeping system depends on the size of the business and how many transactions are completed on a daily, weekly, and monthly basis. Typically, an accountant or the small business owner oversees the bookkeeper’s work.
The Function of Accounting
Accounting involves the process of analyzing, interpreting, reporting, and summarizing the financial data recorded by the bookkeeper or the business owner. Some of an accountant’s responsibilities include:
- Preparing adjusted entries (i.e., earned revenue or incurred expenses that haven’t yet been recorded during the bookkeeping process).
- Preparing financial statements on the condition and performance of the company.
- Creating management reports to address specific issues.
- Analyzing operations costs.
- Creating a company budget.
- Compiling tax returns from the financial data.
- Helping the business owner understand the company’s financial data and the impact of his/her financial decisions.
Basically, the accounting process helps you understand where your business stands financially at any point in time by measuring your company’s progress in the terms of growth and financial success. Additionally, the financial data generated helps you to make informed business decisions, so you can plan for your company’s future.
The Importance of Understanding Bookkeeping and Accounting Functions
To many business owners, bookkeeping and accounting may appear to be the same since they both deal with financial data. But, by knowing the difference, a business owner can understand how and when to use bookkeepers and accountants. By working with qualified bookkeepers and accountants, you’ll have the information you need to make the right business decisions for long-term success.
However, it’s important to note that with the use of today’s accounting and bookkeeping software programs, the traditional lines between bookkeeping and accounting processes have blurred. Now, bookkeepers can handle more of the accounting process than just recording transactions. They can classify and generate reports based on the financial data, too.
Grace Walker with The Payroll Department is one of these experienced full-charge bookkeepers. Not only can she help you with your daily bookkeeping transaction postings, she can also provide cash flow management, generate financial reports, create budgets, and perform sales tax reporting.
If you’re ready to outsource your company’s bookkeeping services, contact Teresa Ray, owner of The Payroll Department, at 317-852-2568 for more information about how we can help your business. The bottom line is, when you work with experienced professionals like Grace Walker, you can help direct the long-term success of your company.
– Ariane of The Payroll Department Blog Team
