Bookkeeping and Accounting: What You Need to Know

Introduction

In a rapidly changing corporate landscape, businesses are growing, requiring more staff and expansion. Thus, this eventually leads to more financial management and that’s the time most businesses ask “who to hire” for financial assistance. But then the million-dollar question arrives: do you want bookkeeping services or accounting services? Let’s dig into it!

Bookkeeping and accounting, both terms are often used interchangeably, they do overlap at some points but still, fall under different definitions. Well, the main advantage of bookkeeping and accounting services is that they will help you stay on top of business and financial transactions, helping you manage cash flow statement and tax filing on time.

Are you confused that what’s the difference between bookkeeping and accounting? In this article, we will discuss the roles and responsibilities of each, and help you decide which service is right for your business.

What is Bookkeeping?

Bookkeeping is a day-to-day process of recording financial transactions, including income records, expenses, assets, liabilities, and equity in a systematic and chronological order. It provides a historical record of a business’s financial activity, and this information can be used to track cash flow, identify trends, and make financial decisions.

In simpler terms, the bookkeeper keeps records of Accounts. Well, you should keep your financial transactions and financial statements on hand because it is the basis of accounting, and hence, the accuracy of accounting is determined by accurate bookkeeping. 

On top of that, bookkeeping software has taken over most of the time-consuming tasks, leading more and more business owners to embrace its benefits. According to the Sage report, 83% of businesses want accountants to do more compared to the requirements of 5 years ago. This means that the rate of individuals handling their bookkeeping has been declining in recent years. This shift can be attributed to the growing significance of accounting software and the rise in financial literacy.

KEY TAKEAWAY!

Bookkeepers use a variety of tools to record financial transactions, such as journals, ledgers, and accounting software.

What is Accounting?

Bookkeeping is the foundation of accounting! 

Accounting involves the analysis and interpretation of financial data that is synchronized and listed in bookkeeping.

In general, accounting involves the preparation of financial statements, such as the balance sheet, income statement, and cash flow statement, which also includes, tax preparation, financial planning, business consulting, payroll processing, auditing, risk management, and tax law Compliance. Accounting is crucial because it provides a snapshot of a business’s financial health. This information can be used to attract investors, secure loans, and make strategic decisions.

Amid the increasing demand for bookkeeping services, accounting services are also high in demand. According to the Bureau of Labor Statistics (BLS), the demand for accountants is expected to grow by 6% between 2022 and 2031.

KEY TAKEAWAY! 

An accountant can play the role of a bookkeeper, but a bookkeeper cannot do vice versa without credentials.

Key Differences Between Bookkeeping and Accounting

Let’s break down the difference between bookkeeping and accounting

• Bookkeeping is the process of recording financial transactions, while accounting is the process of analyzing and interpreting financial data.
• Bookkeeping is more clerical in nature, while accounting is more analytical.
• Bookkeepers are responsible for recording financial transactions, while accountants are responsible for preparing financial statements and providing financial advice.

Similarly, we have listed below the detailed overview of Bookkeeping and Accounting.

The Role of Bookkeeping in Business

The traditional role of bookkeeping in business involves the manual recording of financial transactions systematically and accurately. This includes recording income, expenses, assets, liabilities, and equity. However, in modern times it has been shifted from manual to automation with the advent of bookkeeping software; like QuickBooks, Xero, NetSuite, and more.

On the whole, Bookkeeping is important because it provides a foundation for accounting. However, it is impossible to prepare accurate financial statements without accurate bookkeeping.

Understanding Bookkeeping Tasks and Responsibilities

It typically includes

• Recording financial transactions. This includes entering data into a journal, which is a chronological record of all financial transactions.
• Classifying financial transactions. Once transactions are recorded in the journal, they must be classified into different categories, such as income, expenses, assets, liabilities, and equity.
• Posting financial transactions to ledgers. Ledgers are organized lists of financial transactions that are grouped by category, varying in format from a sheet of paper to organized in complex software.
• Maintaining accurate financial records. Bookkeepers must keep accurate financial records to comply with tax laws and regulations.

Moreover, bookkeepers should be accurate and detail-oriented when maintaining records. Likewise, They must also be able to follow strict procedures and regulations.

The Role of Accounting in Business

The role of accounting in business is to analyze and interpret financial data, including preparing financial statements, such as the balance sheet, income statement, and cash flow statement. 

When accurately performed, this whole process will provide the bigger picture of your business’s financial health and eventually lead you to make data-driven decisions. Thus, accounting for small businesses becomes a crucial step.

This information can be used to attract investors, secure loans, and make informed business decisions.

 Understanding Accounting Tasks & Responsibilities

Accounting usually includes:

• Preparing financial statements. Financial statements are reports that summarize a company’s financial activity. The most common financial statements are the balance sheet, income statement, and cash flow statement.
• Analyzing financial data. Accountants use financial data to identify trends and patterns, helping you to make informed business decisions, such as how to allocate resources or when to expand.
• Interpreting financial data. Accountants communicate financial data to stakeholders, such as investors, creditors, and management. 
• Making recommendations based on financial data. Accountants use their knowledge of accounting and finance to make recommendations to management, helping the company improve its financial performance.

While performing financial duties, accountants must have a strong understanding of accounting principles and procedures. They must also be able to think critically and make sound financial decisions.

By the way, if you’ve come up this far with who to hire, now it is time to know when you should hire an accountant or bookkeeper and who can help with it. 

When to Hire an Accountant or Bookkeeper for Your Business

If you are a small business owner, you may be able to handle your bookkeeping. But, as your, business grows, you may need to hire an accountant or bookkeeper to help you with your financial management.

There are several factors to consider when deciding whether to hire a bookkeeper or accountant, including:

• The size of your business.
• The complexity of your financial transactions.
• Your level of comfort with financial matters.

Conclusion

Bookkeeping and Accounting – Crucial for Business Success

Bookkeeping and accounting are crucial for business success. By understanding the key differences between bookkeeping and accounting, you can make informed decisions about how to manage your business finances. Well, both of these services go hand in hand.

By hiring a qualified bookkeeper or accountant, you can ensure that your financial records are accurate and up-to-date. This will help you make better business decisions and avoid costly mistakes.

How can FixIT help?

FixIT is a financial consultancy firm with certified CPAs, providing financial assistance to small and medium-sized businesses across North America and Europe. 

Whether you require expert guidance in bookkeeping, accounting, tax planning, financial analysis, or strategic decision-making, our experts are always ready to help you.

If you have any queries, contact us today to schedule a consultation with our experienced team. Let us show you the difference our expertise can make in achieving your financial goals and maximizing financial health. Together, we’ll pave the way to your business success.