Accounting Is Not The Same As Keeping Books
Cash flow and accountability are what makes or breaks many small businesses. Accurate recordings of transactions, along with proper assessment and processing, give small-business owners a firm base on which to make decisions and create opportunities for growth.
Understanding and recording the sales, expenses and other basic business financials should be easy enough for small-business owners. Understanding the accounting needs of a business is not always so simple. What type of activity is considered bookkeeping, and when do you need an accountant instead? What is the difference between the two?
There is a difference, and it is a simple but important one: Bookkeepers record a small business’ daily transactions, while accountants verify and analyze that information. A bookkeeper’s area is daily financial transactions, which include purchases, receipts, sales and payments. Recording these items is usually done through a general ledger or journal. Many small businesses use software to keep track of their entries, debits and credits. These efforts culminate in a trial balance, which means the final total of debits and credits match.
According to D’Arcy Becker, CPA and chairwoman of the Department of Accounting and Finance at the University of Wisconsin, “Bookkeeping is designed to generate data about the activities of an organization. Accounting is designed to turn data into information.”
An accountant verifies the data entered, and then uses that data to generate reports, analyze the account, perform audits and prepare financial reporting records, like tax returns, income statements and balance sheets. An accountant’s analysis of the financials can provide information for forecasts, business trends, opportunity for growth and when to analyze cash flow.
“Accountants look at the big picture,” wrote John Tracy in his book “Accounting for Dummies.” “Once the accountant decides how to handle transactions, the bookkeeper carries them out.”
Regardless the size of your business, it is critical for ongoing success to ensure the financial accuracy of daily transactions and use that data to make decisions for the future of your business. If you feel your business is growing too quickly to be able to handle the financial part of your business, you should consider hiring someone to help you keep track and make sense of your business transactions.
While many small businesses hire an accountant outside of the company, bookkeeping is more diverse. Some small-business owners do their own bookkeeping on software recommended or used by their accountant, providing it to him or her on a weekly, monthly or quarterly basis. Other small businesses are large enough to employ a bookkeeper, or have a small accounting department.