Every business owner should know that although accounting and bookkeeping accounting are both important business functions, there are differences. Both accountants and bookkeepers support your business in different ways as your business evolves. Here are details to consider when working with one, both or if you choose the DIY method.
What is bookkeeping?
Bookkeeping sets up the foundation for accountants, tracking your finances by recording transactions. This gives you a holistic view of your business so you can easily see the amount of money coming into and leaving your business. Bookkeepers are tax compliant so you can avoid penalties and fees from the IRS
Here are six common bookkeeping tasks:
- Recording income from services and expenses like rent, utilities and office supplies.
- Some bookkeepers manage payroll.
- Depending on your needs, some bookkeepers create invoices and make payments.
- Comparing the balances in your books against bank transactions to see if they match. If not, they make adjustments and create bank reconciliation statements to record these discrepancies.
- Tracking money owed (accounts payable) and money owed to you (account receivable)
- Bookkeepers follow up on late payments.
- Maintaining the general ledger that has a record of all financial transactions. The general ledger typically uses the double-entry accounting method, meaning for every debit on one account there’s a corresponding credit on another.
What is accounting?
Here are four accountant responsibilities. They use the financial data to offer detailed insights and guide smart business decisions.
- Preparing financial statements to help you assess the overall financial health of your business including:
- Balance sheets: A snapshot of your financial situation at a point in time, calculated through this formula: Assets = Equity – Liabilities. Find additional details on the SmartBiz Small Business Blog: How to Create a Balance Sheet for Your Business
- Income statements: A record of all your income and expenses over a period of time. More information here: How to Prepare an Income Statement
- Cash flow statement: A record of cash flowing in and out of your business for a period of time. For an overview of cash flow analyzation, review this article from SmartBiz University: Analyzing Cash Flow
- Analyzing journals and ledger entries, and making adjustments, and identifying any incurred expenses that have not yet been recorded
- Providing tax advice, completing and filing tax returns
- Offering financial advice and helping understand the consequences of your financial decisions
Bookkeepers aren’t required to have specific education but should be very accurate and familiar with key financial topics. If you’re hiring a bookkeeper, it’s a good idea to hire one familiar with small business operations.
Generally, if you want to practice as an accountant, you must have a bachelor’s degree in accounting or another finance degree. Accountants can be awarded additional professional certifications like Certified Public Accountant (CPA). Learn more here from the Crush the CPA Exam blog: Top 5 Best Accounting Certifications.
What are the differences between bookkeeping and accounting?
Accountants are qualified to handle the entire business accounting process, while bookkeepers handle recording financial transactions. For accuracy, accountants often advise bookkeepers and review their work. Bookkeepers take care of financial transactions so accountants can analyze the data.
Similarities between bookkeeping and accounting
Because they both work in the financial space, bookkeepers and accountants share some similarities.
- Both work with financial data
- Common goal of improving the financial situation of the business shared.
- Accounting knowledge required
- Roles can overlap in small business
- Both are tax compliant
When should a business owner hire bookkeepers or accountants?
Small entrepreneurs may be able to outsource accounting or bookkeeping services for quite some time -- or until it has about 30 employees. Until then, most businesses usually don't have enough work to keep a full-timer busy every day.
It's time to hire full-time help, though, when you're calling your accountant often enough that you wish he or she were in the office all the time. Bring in a full-time bookkeeper when your part-timer is spending two or three full days in the office and still falling behind.
Keep in mind that a bookkeeper compiles the financial data and the accountant makes sense of it and can provide business operation recommendations. An accountant for your small business is also very helpful when you need help with the collection, analysis, and reporting of financial information.
If you’re spending valuable time on bookkeeping or numbers aren’t your strong suit, consider bringing a bookkeeper on staff or hire an outside consultant.
Helpful accounting software programs
Here are accounting programs to help you organize your finances. If you bring on a professional, they may use one of these as well.
Shoebox accounting (tossing everything together and sorting it out later) can cripple your company. These days, small businesses need an accounting system that’s cost effective, up-to-date and can handle all financial tasks you need to run your company. If you’re not happy with your current system or need to establish one, consider one of these free accounting software systems:
- GnuCash is a great fit for a business in need of organized and easy bookkeeping. The software has features like invoice management, accounts payable and receivable along with expense tracking and payroll.
- CloudBooks is a cloud-based accounting solution designed for small businesses and freelancers. It includes features for billing, invoice creation, project management and time tracking. CloudBooks is only free for 30 days then it’s priced at just $10 per month.
- Wave might be the best fit for you if you’re a sole proprietor or run a small business. It's 100% free for accounting, invoicing and receipts. There’s no payroll features and you’ll have to pay if you need personal technical support.
- SlickPie is free accounting software for start-up or micro businesses. The website sums up the SlickPie mission: “Developed to provide small business owners with a simple and intuitive accounting experience that users can pick up and use right away; no headaches.”
- QuickBooks Online is a cloud-based accounting software for small businesses. It offers solutions for managing sales, expenses, cash flow, and more. QuickBooks has a comprehensive help center to help you learn the program and handle your finances easily and quickly.
DISCLAIMER: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult a certified accountant or tax professional for further information.