Bookkeeping is the foundation of financial analysis. It is the practice of recording business transactions in the general ledger, whereas accounting is the process of utilizing that information and analyzing to create insights into the financial health of a company.
However, there are many more differences than just this. Accounting and Bookkeeping work together to paint the picture of a businesses’ financial actions and decisions. It is important to utilize both of these two functions to effectively monitor your company’s wellbeing.
Bookkeeping
Bookkeeping is the process of recording financial transactions and maintaining financial records to support a company’s financial statements. Bookkeeping is only one small part of accounting, which is the overall examination of a company’s financial results.
Bookkeeping has two methods of recording transactions:
Single-entry recording
Double-entry recording
Most businesses use the double-entry method and typically use software like QuickBooks® to keep track of their transactions. Though these systems are mostly automated, it can be useful to have a bookkeeper in your corner to monitor and complete more advanced recording that is necessary to the accounting cycle.
What they should be responsible for:
Financial transactions: Using your account software to post journal entries and review source documents and transactions.
Reconciliations: Reviewing the general ledger for transactions and other information to ensure they are correctly posted as well as reconciling bank accounts.
Data entry: For your employees, bookkeepers are essential with recordkeeping for monthly payroll processes, adjusting employee tax withholdings and rates, and ensuring net pay is correct. Infinity bookkeepers is certified in QuickBooks®, so we are able to integrate these functions within the software you already have.
Monitoring: Bookkeepers make sure that accounts payable are paid on time for vendors as well as help owners with accounts receivable collections. Monitoring these transactions keep the company on time and improves cash flows.
Accounting
Accounting is the practice or profession of maintaining the financial records of a business, including bookkeeping as well as the preparation of statements concerning the assets, liabilities, and operating results.
Accounting has two ways to recording debits and credits:
Cash recording
Accrual recording
The main difference between accounting and bookkeeping is the fact that accountants must report within the Financial Accounting Standards Board’s (FASB) GAAP standards for accrual-based accounting. They are also required to remain a Certified Public Accountant (CPA) to fairly report a company’s financial statements. Most accounting for smaller businesses is outsourced by firms, which can save time and money over the long-term.
What they should be responsible for:
Financial statements: Creating financial reports like the balance sheet, income statement, and statement of cash flows with the records previously established. They also make adjustments to the trial balance.
Tax returns: Accountants are responsible for tax filings and other financial reports to send to the IRA for tax returns. CPA firms are also utilized to help companies survive tax season.
Businesses cannot simply have bookkeeping OR accounting, they need both to be correctly analyzing their financial wellness and making the most informed decisions. In order to go forward with analytical decision making, you need to stay on top of your books. If you’ve fallen behind or just neglected your books in general, consult Infinity Bookkeepers for free to find out which services are right for you.