When most people think about the difference between bookkeeping and accounting, they are hard-pressed to nail the distinction between each process. While bookkeepers and accountants share common goals, they support your business in different stages of the financial cycle. If you are running a small business, you may be trying to decide if you should hire on or both. This information can help you to discriminate between the two, and make the best decision for what your business needs.
The Function of Bookkeeping
Bookkeeping is the day to day process of recording transactions in a consistent way that helps you to make financial decisions for your business. Bookkeeping helps you to see what money is coming in, what money is going out, and your daily expenses. Bookkeeping includes:
Recording daily transactions
Posting debits and credits
Producing invoices
Preparation of financial statements
Maintaining ledgers, and
Completing payroll
How complex bookkeeping will be depends on the size of the business and the amount of transactions that occur daily. A bookkeeper’s most important job is to have supporting documents of transactions when it comes to reporting to the IRS.
The Function of Accounting
Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial models. The accounting process is more subjective than bookkeeping. Accounting includes:
Preparing adjusting entries
Reviewing company’s financial statements
Analyzing cost of operations
Completing income tax returns and
Aiding the business owner to make smart financial decisions
An accountant can help you to make decisions for your business based on profitability and cash flow. An accountant takes the information that your bookkeeper records, and makes insights to promote your business. Accountants can help with strategic tax planning, analyzing your financial position, forecasting and tax filing.
The Bottom Line
Depending on the size of your business, you may be able to handle the bookkeeping in house. With that being said, it takes someone that has good experience with numbers and how to keep track of transactions and payroll.
The benefits of having an accountant to help you make good decisions regarding taxes and the growth of your business is essential. When trying to decide if your business needs both, it will be important to look at the future growth of your business and what’s going to help your profit.
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