There are many terminologies entrepreneurs must familiarize themselves with to gain a better understanding of their business operations. Among them are bookkeeping and accounting.
Both encompass the financial aspect of running the company, dealing with financial data, and tax compliance. These processes also contribute to the goal of improving business operations. Still, there are several differences to these business functions.
Keep on reading to know how bookkeeping and accounting vary from each other.
Bookkeeping involves recording and managing a company’s financial data, including transactions and expense accrual, among others. The financial information obtained from this process serves as the foundation for accountants, making bookkeeping a vital business function.
With proper bookkeeping, entrepreneurs can monitor their financial data, seeing the amount of cash incoming to and outgoing from their company. It also promotes sound financing and helps in the decision-making for business operations.
Typically, bookkeepers have the following responsibilities:
- Record income and expenses from overhead costs.
- Compare and match the company’s book balances against bank transactions.
- Monitor accounts payable and accounts receivable.
- Maintain the general ledger.
- Some bookkeepers can also manage payroll, create invoices, make payments, and follow up on late remittances.
On the other hand, accounting means summarizing, analyzing, and reporting a business’s financial transactions to relevant entities. They may include oversight agencies, regulatory bodies, and tax collection institutions.
Data obtained from accounting like financial documents and performance metrics provide relevant insight into the business’s financial health and can be used for financial projections. This information is essential when making business decisions.
Commonly, accountants have these four basic tasks:
- Create financial statements for evaluating the business’s financial health, including balance sheets, income statements, and cash flow statements.
- Evaluate journal and ledger entries, determining expenses not yet recorded, and making adjustments accordingly.
- Handle tax-related responsibilities like accomplishing and filing tax returns. Accountants can also provide tax advice to their clients and help them maximize possible tax benefits.
- Provide professional insight on the financial aspect of the business, enabling entrepreneurs to understand the outcomes of their financial decisions better.
When Should You Hire a Bookkeeper or an Accountant?
Some small business owners might think of doing bookkeeping and accounting tasks by themselves, but going the DIY route might be impractical if they are not well-experienced and knowledgeable on the matter.
Essentially, small business owners should have both a bookkeeper and an accountant to manage their finances. These professionals possess knowledge and skills that are beneficial for the company in the long term.
Entrepreneurs may hire in-house staff or outsource accounting and bookkeeping services, depending on their needs and budget. Often, many prefer hiring the services of a small business bookkeeping and accounting firm because of its cost-effective advantages.
Where to get Reliable Accounting and Bookkeeping Services?
KIPPIN – from the phrase “Keeping it simple” – aims to make people’s lives easier by providing simple solutions to everyday tasks. We offer accounting, bookkeeping, invoicing, and tax services – all on the cloud. We also align our clients to top bookkeepers and accountants on our platform.