Every business owner should know that, although accounting and bookkeeping are both important business functions, there are differences. Accountants and bookkeepers support your business in different ways as your business evolves. Here are details to consider.
What is bookkeeping?
Bookkeeping sets up the foundation for accountants, tracking your finances by recording transactions. This gives you a holistic view of your business so that you may easily see the amount of money coming into and leaving your business.
Here are six common bookkeeping tasks:
- Recording income from services and expenses like rent, utilities, and office supplies.
- Managing payroll.
- Depending on your needs, some bookkeepers create invoices and make payments.
- Comparing the balances in your books against bank transactions to see if they match, and making adjustments and bank reconciliation statements if they do not.
- Tracking accounts payable and accounts receivable.
- Maintaining the general ledger that has a record of all financial transactions. The general ledger typically uses the double-entry accounting method, meaning that, for every debit on one account, there is a corresponding credit on another.
What is accounting?
Accountants use the financial data to offer detailed insights and guide smart business decisions. Here are four responsibilities of an accountant.
- Preparing financial statements to help you assess the overall financial health of your business, including:
- Balance sheets: A snapshot of your financial situation at a point in time, calculated through this formula: Assets = Liabilities + Equity
- Income statements: A record of all your income and expenses over a period of time. More information may be found here: Income Statement Example
- Cash flow statement: A record of cash flowing in and out of your business for a period of time. For an overview of cash flow analysis, take a look at this SmartBiz Bank® article: Mastering Small Business Cash Flow
- Analyzing journals and ledger entries, making adjustments, and identifying any incurred expenses that have not yet been recorded
- Providing tax advice, completing and filing tax returns
- Offering financial advice and helping you understand the consequences of your financial decisions
Bookkeeper credentials
Bookkeepers aren’t required to have specific education, but they should be very accurate and familiar with key financial topics. While not required, some certifications may help you identify the right fit. QuickBooks® ProAdvisor and AIPB certification are popular ones. Choosing someone with these certifications may help ensure that you’re getting a bookkeeper who understands how to use modern tools.
Accountant credentials
Generally, if you want to practice as an accountant, you must have a bachelor’s degree in accounting or another finance degree. Accountants usually are awarded additional professional certifications, like Certified Public Accountant (CPA). Learn more here from the Crush the CPA Exam blog: Top 5 Best Accounting Certifications.
What are the differences between bookkeeping and accounting?
Accountants are qualified to handle the entire business accounting process, while bookkeepers handle recording financial transactions. For accuracy, accountants often advise bookkeepers and review their work. Bookkeepers take care of financial transactions so accountants may analyze the data.
Similarities between bookkeeping and accounting
Because they both work in the financial sector, bookkeepers and accountants share some similarities.
Both of them work with financial data. However, bookkeepers primarily focus on transactions while accountants focus on a company’s large-scale financial data. Both are there to help the business improve its financial decision-making. They also both work to help a business be compliant with state and federal tax regulations.
In small businesses, the roles may even overlap. Accountants often have bookkeepers review their work, and in a small company, the two may work closely together to help the business owner get a fuller, clearer picture of the company’s financial status.
When should a business owner hire bookkeepers or accountants?
Small entrepreneurs may be able to outsource accounting or bookkeeping services for quite some time or until their bookkeeping takes five or more hours per week. Some small businesses usually choose to hire a bookkeeper once they start generating more than $100,000 per year in revenue. Until then, most businesses usually don't have enough work to keep a full-timer busy every day.
If you’re constantly calling your accountant, it might be time to hire someone to help manage your finances in-house. It may be a good idea to bring in a full-time bookkeeper when your part-timer is spending two or three full days in the office and still falling behind.
Keep in mind that a bookkeeper compiles the financial data, and the accountant makes sense of it and should be able to provide business operation recommendations. An accountant for your small business is also very helpful when you need help with the collection, analysis, and reporting of financial information.
If you’re spending valuable time on bookkeeping or numbers aren’t your strong suit, consider bringing a bookkeeper on staff or hiring an outside consultant.
Helpful accounting software programs
AI has impacted virtually every industry, and accounting is no exception. Most of the top accounting programs utilize AI to gather and process data faster.
Shoebox accounting (tossing everything together and sorting it out later) may cripple your company. These days, small businesses need an accounting system that’s cost-effective, up-to-date, and should be able to handle all financial tasks you need to run your company. If you’re not happy with your current system or need to establish one, consider one of these free accounting software systems:
- GnuCash is a great fit for a business in need of organized and easy bookkeeping. The software has features like invoice management, accounts payable and receivable, along with expense tracking and payroll.
- CloudBooks is a cloud-based accounting solution designed for small businesses and freelancers. It includes features for billing, invoice creation, project management, and time tracking.
- Wave might be the best fit for you if you’re a sole proprietor or run a small business. It's 100% free for accounting, invoicing, and receipts. There are no payroll features, and you’ll have to pay if you need personal technical support.
- QuickBooks Online is a cloud-based accounting software for small businesses. It offers solutions for managing sales, expenses, cash flow, and more. QuickBooks has a comprehensive help center to help you learn the program and handle your finances easily and quickly.
- FreshBooks uses AI to automate small business accounting. You may be able to connect business credit and debit cards to automatically check transactions.
- Zoho Books offers a free tier. You may automatically upload documents and use a language-model AI tool to retrieve needed data.
Investing in your company’s financial health
Hiring a bookkeeper, accountant, or even both may significantly improve your business’s financial future. Even if it’s not time to bring someone aboard, investing in modern, quality financial management software may position you to make better decisions going forward. If you need additional funding for these purposes, SmartBiz Bank may be able to help. Find out if you pre-qualify today.
