Bookkeeping and Accounting
Bookkeeping and Accounting are very common in any business environment, and people tend to use them interchangeably. However, the terms Accounting and Bookkeeping are different concepts, and therefore, it is crucial as a business owner you get to learn what the two terms mean and what they involve.
What is bookkeeping?
Bookkeeping is a process that involves tracking and recording all the details that affect the income and expenses of any organization using specific software, spreadsheets, and books for Bookkeeping. In simple terms, it is the process of systematically recording and classifying any organization’s financial transactions regularly. Bookkeeping enables businesses to keep track of all their financial information, making it easy for the company to operate, invest, and even make critical decisions. For this to happen, bookkeepers have to be involved in the bookkeeping process.
They are individuals who specialize in managing financial data for businesses. Accurate Bookkeeping is also important to external users like investors, government, organizations, and financial institutions that require reliable information about your business, especially when investing or lending your finances. It means that Bookkeeping is not for internal use only but also for external use as well. Two types of Bookkeeping are involved in this process. And both types are quite different, but they are also essential for any business. They include single-entry Bookkeeping and double-entry Bookkeeping.
Single entry bookkeeping is an easy and straightforward booking solution for small businesses and even sole traders. Each transaction in the single-entry Bookkeeping is recoded using one entry in a log or a journal. Single-entry Bookkeeping enables the user to see the income, expenses, and difference between their business’s income and expenses for a certain period.
Unlike single-entry Bookkeeping, this is a complicated bookkeeping method and is found within the developed software. In double-entry Bookkeeping, every financial event must be recorded using two corresponding entries: credit and debit. It means that in any transaction you make, you have an account to debit and another one that you need to credit.
What is accounting?
Accounting is a systematic process that involves recording, interpreting, summarizing, measuring, and communicating financial data. Accounting is responsible for determining and presenting the financial position of any business to its stakeholders. It is also essential in helping a business make important decisions of a company, whether long term or short term. The credibility of a business is also conveyed by accounting. Many people refer to it as the language of a business.
What do bookkeepers do?
Bookkeepers can have so many roles depending on the needs of the business environment in which they are working. With the advancement of technology, most of the bookkeepers today use accounting software when doing their jobs. If you have been wondering what the bookkeepers can do, it is clear that you have not decided whether you need one for your business or not. If so, then let’s find out together the importance of a Bookkeeper for a business.
Recording financial transactions
Recording financial transactions are a significant role that bookkeepers can play. They are responsible for recording all the financial transactions of any business. It means that they record transactions like any money that comes into the company (income) and goes out of the company (expenses). As a business owner, this helps you keep a close eye on your business’s viability and profitability.
Reconciling bank accounts
Account reconciliation is critical since it ensures that any transactions in your accounting software are similar or match the transaction details in the bank statements or other financial statements. It is the role of any bookkeeper to make sure that they reconcile the financial accounts. Reconciling bank accounts is essential since it ensures no fraud charges, overdraft fees, or even incorrect transactions. Although accounting software is responsible for reconciling accounts, a bookkeeper must ensure that the transactions have been accurately recorded.
Managing bank accounts
It is usually tough for any business owner to keep track of the transactions they make every day. However, when there is a bookkeeper, this becomes very easy. It is because bookkeepers are responsible for keeping track of the sales and purchases you make every day. Whether they do it manually or using software, they ensure that they keep track of your business’s cash flow by managing your accounts.
As motioned earlier, bookkeepers are responsible for the management of all transactions found in the bank feed. The bank feeds consist of a list of all the transactions made in the bank account. However, this is not enough; bookkeepers must make sure that they categorize all these transactions, ensuring that they are more organized. For instance, if there is a plane ticket, the bookkeeper must categorize this as a travel expense while items like furniture, books, and pens are office expenses. However, those furnitures, computers, books, and pens are also considered an asset to the business as well.
Also, transactions made using cash payments and cheques have to be included, or else there may be inaccuracy in the bank transaction or forgotten. When categorizing transactions, bookkeepers can keep track of this cash, ensuring that everything is accurate.
Preparing financial statements
There are so many reasons why financial statements have to be made in a business. Therefore, whether you need a financial statement when making a budget or when you want to meet with your investors, it is a bookkeeper’s job to prepare them. Some of the types of financial statements that a bookkeeper can make include a balance sheet, profit and loss statement, and cash flow statement.
Billing and invoicing
The other thing that bookkeepers do is taking care of the bills and invoices of a business. They, therefore, manage account receivables and payable. Account receivable is the money that is owed to the business for goods or services that have been provided. In contrast, account payables are the amount of money that a business owes to the suppliers or vendors for goods and services already delivered to them. Let’s keep in mind that taking care of the bills and invoices makes it easy to manage cash flow in a business.
There are some cases where the bookkeepers are responsible for processing payrolls. It involves paying the employees, deducting their taxes by keeping track of their timesheet, etc. The process may seem to be very easy, but it is a little bit complicated. It is because bookkeepers must calculate the pay for each employee withholding taxes and other deductions before distributing these payments to them. Also, bookkeepers must keep the payroll records of all the employees in a business or company.
Working with the accountant
Bookkeepers must ensure that they work with the accountants in the business to ensure that the data provided is accurate and that the financial data required is complete.
It is mainly important when it is time for paying and filing taxes of a business. Dealing with any foreign transactions is part of their responsibility as well. When you have any foreign currencies that require transactions, bookkeepers ensure that they maintain the foreign currency accounts accurately.
The importance of Accounting and Bookkeeping
Accounting and Bookkeeping are two different concepts, but they play vital roles in the business. The following are some of the benefits of accounting and Bookkeeping.
They are keeping the business organized
One of the benefits of accounting and Bookkeeping is ensuring that the business is organized. Failure to be organized is one of the things that will make any business fail. However, it is easy for you to have all the information you require regarding your business with Bookkeeping and Accounting. For instance, without a professional Bookkeeper and Accountant, a company can’t know the amount of money which it spends or earns. This is because one can forget the money they have acquired or spend. However, bookkeepers and accountants help ensure all these transaction records are accurately kept ensuring that the business is organized.
Helps in filing taxes
Many people have plenty of challenges when it comes to filing taxes. However, Bookkeeping is essential for the preparation of the tax filing process. If you want this process to be perfect, you have to know the amount of money that the business has earned for a certain period. This process can be made easier by the Bookkeeper. On the other hand, Accountants ensure that all the financial records required for filing tax returns are available on time. Also, accountants and bookkeepers have to work together during this process to ensure that every piece of information provided is accurate.
It makes you accountable
Accounting and Bookkeeping are two processes involved in the business that ensures that you are accountable for every business process. For instance, you can be responsible for the transactions made on the business accounts daily. For this reason, you are responsible for the progress of your business. Your accountability is one of the things that your shareholders will look for when investing with you—being accountable means that you can update your bank statements in time and perform trial balances in time, which are done during bookkeeping and accounting.
Helps in the decision-making process
The decision-making process in any business or organization is not easy. It is because when the wrong decisions are made, the company automatically fails. Therefore when making decisions in a business, there are so many factors that should be considered, or else one would make the wrong decisions. Such choices include financial decisions in a company. Bookkeeping and accounting provide financial records that are used in the decision-making process in a business. Therefore, business owners can make the right decisions without underspending or even overspending. It also ensures that you make the decisions that will lead to more chances of profits for your business and not losses.
Accounting and bookkeeping help when acquiring loans and investments
When you are looking for loans and investments for your business, the money lenders and investors have to know about your business to make their decisions. Therefore, you have to ensure that you have your accurate financial statements with you. Accounting and Bookkeeping are both critical in ensuring that the financial statements are accurately made and kept.
Managing and monitoring the cash flow
A business needs to ensure that they gauge the financial standing of a company. It means that this is made possible by ensuring that the cash flow of any business is not only monitored and but also managed. These are the responsibilities of the bookkeepers and accountants in a company. Managing and monitoring a business’s cash flow is only done when all books of accounts are organized. It means that Accounting and Bookkeeping are essential as far as the cash flow is concerned.
Why every small business owners should understand the basics of Bookkeeping
When you start a small business, and you would like to know anything about finances, the best place to start is the bookkeeping basics. Proper Bookkeeping is essential for any business’s success, and therefore, every small business owner should ensure that they learn the basics of Bookkeeping. Although I have talked about this in my previous blog post, where I briefly explain the advantages of understanding the Accounting and Bookkeeping fundamentals for business owners, I wanted to add two things on this topic. However, feel free to check out the previous blog post on this subject by clicking here.
Decide which methods of bookkeeping to use
A business can either select a single entry bookkeeping method or a double-entry bookkeeping method. Therefore, every small business must understand bookkeeping basics to learn about these two methods of Bookkeeping. Consequently, it ensures that you can decide on the best bookkeeping method for your business. Remember, you own the company, and you should be the one to make the decision.
Learn how to record transactions
Learning the basics of Bookkeeping also helps you ensure that you know how to record the transactions and read your financial statements. If you have the necessary knowledge on debits and credits, financial statements, trial balance, etc., you will have the upper hand in making decisions and controlling your business’s finances. Otherwise, you will be blindly gambling over your business.