A first-year business owner’s understanding of bookkeeping and accounting could mean the difference between growth and stagnation. Why? Because even a sole proprietor with no payroll needs financial IQ. That’s why comparing bookkeeping vs. accounting is a helpful exercise for small business owners here in Fort Worth.
To start off, we do recommend assigning both functions to a qualified accounting firm. But first let’s take a closer look at these often-confused financial activities and see what we can uncover.
In this blog, you’ll learn about the distinct roles that bookkeeping and accounting play, how they’re different, and why both can affect your small business in big ways.
What is Bookkeeping?
Bookkeeping refers to the activity of managing financial records kept by a business. Today, we “keep” accounts using software; so the day-to-day work of a bookkeeper is data entry.
The best bookkeepers ensure that data is accurate, precise, consistent, and easily understood.
Some of the typical duties of a bookkeeper include:
- Recording and reconciling transactions
- Tracking debits and credits
- Creating invoices
- Managing payrolls
- Balancing ledgers, accounts, and subsidiaries
- Goods and services tax and compliance work
All of the duties above pertain to a business’ ‘books’—the cumulative record of all its purchases and sales.
Your business’ books contain the data an accountant needs to prepare compliant tax returns and tell you about the financial state of your business.
Keeping a business’s ledger is one of a bookkeeper’s most important duties. The complexity of the ledger depends on the business in question.
A ledger can be managed using a simple Excel spreadsheet or specialized software such as Quickbooks or Xero.
Knowing the Value of Bookkeeping
All sales and purchases conducted by your business must be recorded in your ledger for tax purposes. More information on which transactions will require supporting documents is available from the IRS.
So when we talk about bookkeeping vs. accounting, we should include the value just as much as the function of each activity. A bookkeeper’s value rests in the accuracy and usability of the data they record. Using that data ultimately falls to a trained and certified accountant.
What is Accounting?
Accounting uses data collected during the bookkeeping process for analysis, tax planning, tax preparation, and other functions.
Accountants can provide useful information on the health, trajectory, and future of your businesses. And while an accountant can handle your bookkeeping, only a certified accountant can perform more complex accounting and analysis.
Some of the typical tasks performed by an accountant include:
- Verifying and analyzing financial data
- Creating reports and conducting audits
- Preparing financial records such as tax returns, income statements, and balance sheets
- Creating financial forecasts
- Identifying business trends and growth opportunities
- Providing financial counseling to business owners
Take a second to compare the accountant’s tasks with the bookkeeper’s. There’s a broader difference. A bookkeeper works in the “now.” Accountants plan for the future.
Understanding the Value of Accounting
A regular accountant can increase tax savings offered by applicable tax credits and deductions. That’s what they use the data in your books for.
But tax preparation and filing are just the beginning.
What can a certified public accountant (CPA) do for your business?
First, they help you structure your businesses’ financials for on-going and progressively better tax savings in the future. Second, they turn financial analysis into actionable information you can use to grow your business.
(For example, your accountant can use your business’ financial data to recoup value lost to depreciating assets. This requires a deep understanding of tax benefits, which your CPA will use to adjust for losses on your end-of-year tax statements.)
How Are Bookkeeping and Accounting Related?
The duties of a bookkeeper and an accountant are interrelated but distinct. Bookkeepers are responsible for gathering and maintaining data, and accountants use that data to provide financial services to business owners.
While bookkeeping requires a specialized skill set and attention to detail, it does not require the same level of training and certification as accounting.
To be brutal about it, a good bookkeeper, while important, is not a substitute for a good accountant. So does this mean that in the battle of bookkeeping vs. accounting, accounting wins? Nope. In fact, if you’d like to run a successful business, it’s better for everyone if your bookkeeper and accountant stay good friends.
Bookkeeping vs. Accounting? They Work Better Together
As a small business owner, trusting your bookkeeping and accounting services to the same firm is one of the best decisions you can make for your business’s future.
Here’s why: When an accounting firm provides bookkeeping services, they have a vested interest in the accuracy and usability of your financial data.
Better financial data leads to better financial analysis, predictions, and planning.
Have your bookkeeping and accounting handled by the same firm. It’s a good idea.
Learn More About Our Accounting Services
To learn more about our firm’s available bookkeeping and accounting services, visit our website and fill out our contact form today.