Accounting And Taxes
06-May-2021 By - team

When one has the thought about bookkeeping and accounting, then it becomes hard to tell the difference between both. Both processes are quite similar as they share some common goals, but actually, support the business in different stages of the financial cycle.

Bookkeeping is administrative and more transactional at the same time as the entire focus is placed on recording the financial transactions. Whereas accounting is more subjective, and that gives your business that is based on the information related to bookkeeping. Mentioned here are the entire functional differences between the accounting and bookkeeping to make you understand that in a better way.

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The Function of Bookkeeping

Bookkeeping is a process of recording daily transactions and managing monthly bills, keeping records of transactions, paying bills, making sure payroll is accurate and following state and federal regulations as well. It is a component to create a financially successful business. Anytime, in the business, one needs to cross the threshold and get more emphasis on the need for reports that are created on time and with accuracy.

The function of Accounting

Accounting is a high-level process where financial information is used that is compiled by a bookkeeper or business owner. It makes the financial models with the help of information. The accounting process is more subjective compared to bookkeeping and that consists of preparing financial statements of the company, making adjusting entries, analyzing operations’ cost, making done the income tax returns and adding the owner of the business in understanding the impact of the financial decisions. The accounting process offer reports getting the financial indicators together. Business owners took the help of accountants with financial forecasting, tax filing, and strategic tax planning as well.

To Shift Landscapes

There are some of the accounting process’ components have been absorbed in the bookkeeping process like bookkeeping software is able to create the financial statements and then some of the differences between the accounting and bookkeeping are shaded down.

Understanding the Role Of Bookkeeper Vs. Accountant

The Bookkeeper

it is necessary that a bookkeeper should have the experience of two to four years or should have the associated degree along with complete knowledge regarding the key financial topics. The bookkeeper’s work is overlooked by the accountant or any small business owners whose work is going under process.

The Accountant

To qualify for the post of being an accountant, one should be having at least the bachelor’s degree in accounting. One, who is not having the same, can also consider the same in case having the finance degree as a substitute. Accountants are different from the bookkeepers and they are eligible to acquire additional professional certificates. Like, accountants who are having prior experience and education can get a certificate of title from the accounting designations.

Conclusion

Having well-organized financial records and proper finance balance are generated by the bookkeeper, whereas, a combination of smart financial strategy and proper tax filing is done by the accountant, both collectively can contribute to the long term success for any business.

Thinking about hiring an accountant or bookkeeper? Here’s what you need to know about these two roles before you decide which one best meets your business’s needs.

  • Bookkeeping is a direct record of all purchases and sales that your business conducts, while accounting is a subjective look at what that data means for your business.
  • An accountant can be considered a bookkeeper, but a bookkeeper cannot be an accountant without proper certification.
  • To know whether you need a financial professional, assess the current financial position of your business, compare that to how you want your business to grow financially, and decide if you can manage that on your own.

Staying on top of your finances is a key part of being a successful small business owner. As such, it’s important that your financial data is current and accurate so that you have the tools you need to make sound business decisions and ensure healthy cash flow.

As your business grows to include more customers, vendors and employees, it can get more difficult to keep track of your finances on your own.

When the bookkeeping and accounting tasks for your small business are too much to handle by yourself, it’s time to hire help. But do you need a bookkeeper or accountant? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are distinct differences.

Here’s what you need to know to decide which is best for you.

Bookkeeping vs. accounting

Bookkeeping is a transactional and administrative role that handles the day-to-day task of recording financial transactions, including purchases, receipts, sales, and payments. Accounting is more subjective, providing business owners with financial insights based on information taken from their bookkeeping data.

“Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor of accounting at the University of Wisconsin Whitewater Department of Accounting. “Accounting is designed to turn data into information.”

Key takeaway: Bookkeepers handle the day-to-day tasks of recording financial transactions while accountants provide insight and analysis of that data.

What does a bookkeeper do?

Bookkeeping, in the traditional sense, has been around as long as there has been commerce – since around 2600 B.C. A bookkeeper’s job is to maintain complete records of all money that has come in and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way, and their records enable the accountants to do their jobs.

These are some typical bookkeeping tasks:

  • Recording financial transactions
  • Posting debits and credits
  • Producing invoices
  • Managing payroll
  • Maintaining and balancing ledgers, accounts, and subsidiaries

One of the main duties of a bookkeeper is maintaining a general ledger, which is a document that records the amounts from sale and expense receipts. Ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks and Xero, to track their entries, debits, and credits. 

Each sale and purchase made by your business must be recorded in the ledger, and some items will need documentation. 

There are not any formal educational requirements to become a bookkeeper, but one must be knowledgeable about financial topics and terms and strive for accuracy. Generally, a bookkeeper’s work is overseen by an accountant or the small business owner. A bookkeeper, though, is not an accountant, nor should they be considered to be an accountant.

Key takeaway: Bookkeepers can record financial transactions, post debits and credits, create invoices, manage payroll, and maintain and balance the books.

bookkeping-types

What does a bookkeeper charge?

The salary or rates you’ll pay a bookkeeper depend on your business and its bookkeeping needs. There are, though, three factors that affect your cost:

  • Services needed: The bookkeeping services your business needs and the amount of time it takes weekly or monthly to complete them will affect how much it costs to hire a bookkeeper. If you need someone to come to the office once a month to reconcile the books, it costs less than if you need to hire someone full time to handle your day-to-day operations. Once you know what tasks you need the bookkeeper to do, you should then estimate how long it will take to complete those tasks. Based on that calculation, you can decide if you need to hire someone full time, part time or on a project basis.
  • Expertise required: If you have complex books or are bringing in a lot of sales, you want to hire a certified or licensed bookkeeper. Knowing you have an experienced bookkeeper can give you peace of mind and confidence that your finances are in good hands, but it will also cost you more.

Key takeaway: The rate a bookkeeper charges is based on a handful of factors, including how much work you need done, the level of expertise you are seeking and the state you reside in.

What does an accountant do?

An accountant analyzes the financial data recorded by the bookkeeper and provides business owners with important business insights and financial advice based on that information. These are some typical accountancy tasks:

  • Verifying and analyzing data
  • Generating reports, performing audits, and preparing financial reporting records like tax returns, income statements, and balance sheets
  • Providing information for forecasts, business trends and opportunities for growth
  • Helping the business owner understand the impact of financial decisions
  • Adjusting entries

“Accountants look at the big picture,” wrote John A. Tracy in his book Accounting for Dummies. Tracy explains, “[They] step and back and say, ‘We handle a lot of rebates, we handle a lot of coupons. How should we record these transactions? Do I record just the net amount of the sale, or do I record the gross sale amount, too?’ Once the accountant decides how to handle these transactions, the bookkeeper carries them out.”

The accounting process produces reports that bring key aspects of your business’s finances together to give you a complete picture of where your finances stand and what they mean, what you can and should do about them, and where you can expect to take your business in the near future.

Key takeaway: Accountants verify and analyze data, generate reports, spot trends and provide business owners with insights from the financials.

What credentials does an accountant need?

Accountants have varying qualifications depending on their experience, licenses and certifications. To become an accountant, the individual must earn a bachelor’s degree from an accredited college or university.

A CPA is an accountant who has met the requirements of the state they reside in and passed the Uniform CPA exam. They must also meet ongoing education requirements to maintain their accreditation.

When you’re interviewing for a CPA, look for an accountant who understands tax law, accounting software and has good communication skills. They should understand the industry you operate in and the special needs and requirements of small businesses.

Key takeaway: A CPA is an accountant with advanced skills who has passed the state’s Uniform CPA exam.

How to know when to hire a financial professional

It can be difficult to gauge the appropriate time to hire an accounting professional or bookkeeper, or to determine if you need one at all. While many small businesses hire an accountant as a consultant, you have several options about how you handle bookkeeping tasks.

For example, some small business owners do their own bookkeeping on software their accountant recommends or uses, providing it to the accountant on a weekly, monthly, or quarterly basis for action. Other small businesses employ a bookkeeper or have a small accounting department with data entry clerks reporting to the bookkeeper.

When looking for a certified bookkeeper, you must first decide if you want to hire an independent consultant, a firm, or, if your business is large enough, a full-time employee. You can ask for referrals from friends or colleagues, your local chamber of commerce, or search online social networks like LinkedIn to find bookkeepers. You can also look at the American Institute of Certified Public Accountants to find CPAs that have skills in certain areas, such as employee benefits or personal finance.

It may take more background research to find a suitable bookkeeper, because they are not required to hold a professional certification, like accountants, so a strong endorsement from a trusted colleague or years of experience are important factors to consider.

Still not sure if you need to hire someone to help with your books? Here are three instances that indicate that it’s time to hire a financial professional.

  • Your taxes are complex. If your taxes have become too complex to manage on your own, with multiple income streams, foreign investments, several deductions or other considerations, it’s time to hire an accountant. An accountant can save you hours of time and help you stay on top of important matters like payroll, tax deductions and tax filings.
  • You’re spending more time on accounting tasks than growing the business. If you are spending so much time taking care of accounting tasks that you’re not able to work on growing your business or keeping existing customers happy, you’re doing your enterprise a disservice. You may be able to make more money long term if you leave the accounting to the experts and focus on your growth prospects.
  • Your business is experiencing growth. Doing your accounting yourself may be fine when your business is small, but if your business is in growth mode, it may be a sign that it’s time to bring on someone to help. You could start by contracting with a bookkeeper who balances the books once a month and a CPA who handles your taxes. Then, as your bookkeeping needs increase, you could bring someone on staff.

Whether you hire an accountant, a bookkeeper, or both, it’s important that the individuals are qualified by asking for client references, checking for certifications or performing screening tests.

Guest post by : team Form -

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