Basics of Bookkeeping and Accounting

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Starting out in a small business, you might have heard the terms bookkeeping and accounting being used interchangeably. But the terms are different and they are synergistic in a small business setting where both are used. The success of a small business depends on having balanced finances and organized financial records.

Bookkeeping

Bookkeeping is how a small business keeps a daily record of every financial transaction.

The company’s expenses, sales and cash/bank transactions are recorded by the Bookkeeper using a general ledger. This is vital to the company’s finances. The transactions that are recorded are called postings. Bookkeepers can also produce invoices and/or complete payroll. The size of the business and the amount of daily, weekly or monthly transactions determines the complexity of the quickbooks bookkeeping procedure.

Single and double entries are the two methods of bookkeeping. The double-entry system is used by most bookkeeping for businesses and requires any entry to have a corresponding and opposite entry into another account. For example, a $10 in earnings will need two entries: a $10 debit entry to the “Cash” account and a $10 credit entry to a “Revenue” account.

Either lined paper or spreadsheet software can be used for bookkeeping, however, most bookkeeping today is automated and is intermingled with accounting.

Accuracy and completeness are the best traits for a bookkeeper to possess since the software will not know if there is data missing. The accountant usually gives direction to the bookkeeper.

Accounting

Accounting is usually referred to as the language of business. It is how financial information is measured, processed and communicated for your business.

Accounting gives the business owner details on his resources, how those resources are financed and the results of the business using those resources.

Accounting gives a financial record of a company’s financial affairs. Accounting also interprets the data gathered by bookkeepers to determine the financial health of the company. The financial health of the company along with its control functions is included in accounting financial reports. The preparation for tax purposes and other financial materials are also included in accounting reports.

Accountants are educated, certified professionals with the most typical kind being Certified Public Accountant (CPA). CPAs have to pass the Uniform Certified Public Accountant exam and have the required experience to be a professional accountant.

Bookkeeping clerks operate under the direction of the accountant in most businesses. In small businesses the accountant function might be carried out by the Chief Financial Officer (CFO), the actual owner or might be outsourced. Some small businesses even outsource both the accounting and bookkeeping functions.

As a small business owner, if you outsource one or both of your bookkeeping and accounting calculations, you have to not only understand the process but be in control of both functions.

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