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Bookkeeping and Accounting: What you Need to Know


It is challenging to run a business. In fact, one of the hardest things you will ever have to do is run a business. Even if you are an expert in your profession, running a small business requires you to have a wide range of skills. Small businesses in particular are often experiencing difficulty starting off for a number of reasons. Unless you're an accountant, the reason you started your business was probably not to devote all of your time on small business bookkeeping and accounting. You should then try your best to allocate your resources wisely as a small business owner.

Bookkeeping and accounting are something that all businesses must deal with. To avoid debt and run-ins with the tax authorities, you must keep good records of your revenue, expenses, invoices, and receipts. You won't be able to tell if you're earning a profit or losing money if you don't have the basic bookkeeping and accounting skills.

Here’s a basic introduction to bookkeeping and accounting so you can stay on track and help your business grow:

MAIN DIFFERENCES OF BOOKKEEPING AND ACCOUNTING

There used to be a striking difference between bookkeeping and accounting functions, but as more of both tasks have shifted in digital platforms, the distinction is getting unclear. Every business owner, however, has to be aware of a few differences before making a decision about which is best for their organization. It is important to understand the difference so that you can submit proper documentation and locate reliable data.

According to Inc., bookkeeping is the process of entering daily transactions into the company's financial records. It is the foundation of accounting. It primarily focuses on keeping an accurate record of all financial or monetary transactions inside a business. Bookkeepers must be meticulous in their work and educated about important financial concepts.

All financial activities, including tax payments, loans, payroll, sales revenue, investments, interest income, and other operating costs are documented in the original books of accounts. Additionally, bookkeeping records might help you gain a better understanding of your company's finances. You can then use this information to determine whether to change your company's budget or how cash flow is distributed. This is why accurate bookkeeping is essential for any business.

Bookkeeping typically involves the following tasks:

  • - Recording financial transactions

  • - Posting debits and credits

  • - Maintaining and balancing historical accounts and subsidiary ledgers

  • - Creating invoices

  • - Managing payroll

  • - Paying suppliers

Accounting is more comprehensive compared to bookkeeping. It is the language of a business. Accounting is the analysis of your bookkeeping records to comprehend your organization, including operational expenses, income sources, and your overall financial information.

Accounting combines financial data in order to make it transparent and understandable for all stakeholders. It assists companies in keeping up-to-date, accurate financial records. Accountancy responsibilities are often carried out by certified professional accountants (CPAs).

The accountant keeps track of the daily transactions of the business and aggregates them into financial statements including the income statement, statement of cash flows, and balance sheet.

Accounting commonly includes the following activities:

  • - Preparing the company's financial statements

  • - Analyzing the operating expense and business performance

  • - Performing audits

  • - Calculating performance indicators

  • - Delivering data on forecasts, trends and growth opportunities

  • - Adjusting entries

  • - Filing of taxes

  • - Making informed financial decisions

With proper bookkeeping and accounting systems, you can produce financial projections, identify cash flow issues before they arise, and make informed financial decisions for your business.

WHAT IS BEST FOR YOUR BUSINESS

It can be challenging to decide whether you even need an accountant or bookkeeper, let alone when it would be best to engage one. There are numerous solutions available to you for managing financial tasks, even though most small businesses use an accountant as a consultant.

Startups and small businesses may oftentimes get away with handling their own bookkeeping and accounting duties. It wouldn't be financially prudent to continue doing that in the long run because several faults could slip in and end up costing you money and time. As you’re starting your small business, one of the first things you should do is look into professional accounting and bookkeeping services.

There are a few warning signs that indicate you may require expert bookkeeping and accounting assistance:

  • - Challenges in maintaining financial records

  • - Issues with reconciling the monthly accounts

  • - Utilizing the Chart of Accounts incorrectly

  • - Problems with cash flow

When tax season rolls around, many businesses might just need to spend money on an accountant and a bookkeeper. Your accountant will have access to adequate information to prepare your tax returns if your bookkeeper consistently generates financial statements. Aside from the tax season, your bookkeeping and accounting team may need to grow as your company expands so they can assist you with cash flow issues.

You could raise additional funds for your company so you feel more confident about securing extra money in an emergency. You may also be able to receive the required investment if your financial statements are carefully processed over a long period of time.

It's important to note that combining bookkeeping and accounting will ensure that you're well-covered, although most small businesses engage a bookkeeper on a monthly basis and invest in bookkeeping services during tax season.



KEY TAKEAWAYS

Bookkeeping and accounting have both experienced significant changes in the way business is conducted since both have been around for a very long time. Businesses must manage their finances effectively and maintain accurate records.

You may believe that by forgoing the services of an accountant and bookkeeping company, you are saving money, but in reality, the exact opposite is true. Practicing both bookkeeping and accounting reassures you that your business will continue to run smoothly, no matter how small your company is.

Many small businesses struggle because they strive to save money on what they perceive to be unnecessary expenses. The truth is that many of these costs are essential. Hiring bookkeeping and accounting experts has the obvious benefit of being viewed as a genuine investment that often results in higher revenue and savings.

While their approaches may be different, there are certain areas where they overlap. This is why you get confused whether a bookkeeper or an accountant would be the best fit for a business. Therefore, a good rule of thumb is to carefully examine your business goals and available resources before you start finding accountants or bookkeepers. You can eventually choose between hiring an in-house professional, contracting a CPA firm, or outsourcing your bookkeeping and accounting tasks.

You have to invest money to make money, thus one of the first steps you should do is to research the best professional accounting and bookkeeping services for your business. When you choose the right provider for your organization, accounting and bookkeeping services can provide your small business with incredible advantages and benefits.

Peach BPO is composed of certified financial professionals who can look after your company's best interests. Our bookkeepers and accountants are knowledgeable about the shifting market conditions and are proficient at using cutting-edge tools. Feel free to contact us by email or by speaking with one of our representatives if you have any questions about accounting and bookkeeping services.

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