By the time you started your small business, you probably heard the terms “bookkeeping” and “accounting.” Both of these terms are different from each other. Small companies should both bookkeeping and accounting processes, and these two are synergistic.
Bookkeeping is a practice of recording and documenting all of your business transactions in your company’s general ledger – the software that you used to store them.
Accounting, on the other hand, is a practice of analyzing the data and information that you inserted in the ledger. Also, it is responsible for developing insights into a business’s financial practices.
Bookkeeping: What Is It?
It is a process of the daily record-keep of the business’ financial transaction. They also record the sales, cash, bank transactions, and other expenses of the company in the general ledger.
One of the essential practices that you should establish when you open up a business is the recording transactions in both of your ledgers and journal. The accounting and its capability to be accurate is the central core of your business’ finances.
Recording these kinds of transactions is often called to as a posting. A bookkeeper can create invoices and employees payroll. The difficulty of the bookkeeping method may vary depending on the size of the business and the total accumulated transactions of the company. It could be daily, weekly, monthly, quarterly, or annually.
If you want your business to be organized when it comes to finances, hiring a bookkeeper is a must. You can search for an agency like quality back office that can provide high-quality services for your bookkeeping needs.
Different Bookkeeping Methods
There are two methods associated with bookkeeping – single-entry and double-entry. Usually, most businesses utilize the double-entry bookkeeping method in which it requires every entry to the business account should have a corresponding and opposite entry to another account.
It can be done by using a spreadsheet or a piece of lined paper. But thanks to the advanced technology, the bookkeeping process these days are now automated. The software is responsible for intertwining some elements of the accounting process.
The main attributes of an excellent bookkeeper are being accurate and practice completeness because even the most excellent bookkeeper in history can make mistakes once in a while. Also, a bookkeeper works under the supervision of an accountant.
Accounting: What Is It?
It is known as the language of business. It is a process of processing, measuring, and communicating financial information. Accounting can give the business owner the information needed about the company’s finances, resources, and the outcome of the business acquired through their utilization.
One of the functions of accounting is to produce a record of the business’ financial affairs. It includes the analyzation of the values prepared by the bookkeeper to identify the financial status of the company.
Also, it includes the presentation of the current financial condition of a company. It involves preparing financial statements and signals that can be taken from them. Moreover, another function of accounting is the preparation of tax and other financial documents.
Different Accounting Methods
The same with bookkeeping, accounting also has two different methods. One method is based according to how much money a business has and the cash the company received. The other method is the practice of accrual basis accounting.
Cash-based accounting is quite simple compared to the accrual basis. Cash-based accounting is a practice of recording the revenue when you received it and documented the payments when they are successfully made. While on the other hand, accrual accounting is based on when a company earned revenues, rather than received.
The answer to the first question in this article is yes, your business, whether it’s a small one, requires to have a bookkeeping and accounting method. This is to help you manage all your business financial concerns.