Bookkeeping and accounting are inevitable for any business in operation. These processes help the firm to evaluate its worth and take informed decisions. The two terms have a subtle difference, but it is necessary to understand them. Read more about Bookkeeping vs Accounting.
Bookkeeping is the process of recording the financial transactions of a business in a systematic manner. It concentrates on the daily financial transactions of a business, which are entered into the original book of accounts. In simple terms, bookkeeping is the record of daily payments and expenses in a categorised manner.
Bookkeeping helps to maintain the accuracy of the accounting process. Proper bookkeeping leads the path to accurate accounting. Thus, bookkeeping ensures that the financial transactions are accurately recorded and is always updated.
Functions of a bookkeeper
A bookkeeper is a key person who is responsible for managing and recording the financial transactions of a business.
Iconz Business Solutions provides the best bookkeeping services with cutting-edge technology. Our cloud bookkeeping services enable the owners to have access to their data and accountants at any time.
The crucial functions of a bookkeeper are:
- Reconciliation of accounts
Reconciliation is done to cross-check that two sets of records are in agreement. It helps to identify any discrepancies that can arise during financial transactions. Reconciliation can be done daily, monthly, or annually.
Bookkeepers are required to attend to the billings and invoices. This basically includes the accounts receivable and accounts payable. Bookkeepers send invoices and do a follow up to get it paid. They also make sure that invoices from suppliers are accurate and paid on time.
- Organizing transactions
Bookkeepers manage all the transactions that are done through the account. These transactions are then categorised in order to maintain an organized structure. Bookkeepers are responsible for maintaining the accuracy of these categorised transactions. Read more about Bookkeeping vs Accounting.
Importance of bookkeeping
Business owners benefit from bookkeeping. It enables organisations to successfully manage cash flows, plan future strategies, and stay informed about their business operations. It also helps to comply with the criteria set by the federal and local taxing authorities. In other words, once the business starts its operations, maintaining proper records becomes a crucial task.
Bookkeeping is not something that can be overlooked, and the reasons that cite the importance of bookkeeping are as follows:
- Make routine business decisions
When bookkeeping is done in an accurate manner, it helps to retrieve the accounting information easily. This can facilitate routine decisions to be taken more conveniently.
- Attain business targets
Every business aims to evolve with time. But poorly managed financial records can slow down the growth of a business. If there is no accurate data and figures to analyse, it will be difficult to achieve the previously set goals. No business can go forward by making simple guesses. Maintaining the records in a regular and proper manner will help to stay focused on the track of the business. This will, in turn, help to achieve the business targets in a smooth way. Read more about Bookkeeping vs Accounting.
- Keep organised records
A business is required to make crucial decisions based on financial records. Proper bookkeeping helps to find crucial data on time and can aid in decision making. For the smooth running of the business, it is very important to maintain the records in an organized manner. This helps to avoid any confusion that may arise in between and also reduces even the smallest errors that may occur.
- Reporting to investors
Investors play a very important role in making crucial decisions. They are concerned with the utilization of the money invested in the business. They must be intimidated by the potential growth of the business as well as the profitability of the business. These aspects can be sorted out with an accurately managed financial record. The performance of the business and the incurred profits can be readily evaluated from the records. Thus, bookkeeping can ease out the inconveniences involved in reporting the outcome to the investors.
- Records source of transactions
Bookkeeping records the sources of all financial transactions involved in the business. It also keeps track of the payments, receipts, purchases, and sales and keeps records of transactions. This provides a basis for preparing the financial statements for the business.
Iconz Business Solutions provides the best bookkeeping services in NSW. The professional and dedicated team at Iconz provides you with all the guidance required and lessens your burden. Read more about Bookkeeping vs Accounting.
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Accounting is the process of interpreting, analysing, and reporting the financial transactions of a business. Bookkeeping acts as a basis for the accounting process.
Accounting involves the preparation of financial statements, which are the precise summary of financial transactions. It indicates the company’s financial position and cash flows.
Personal accountants and accounting services at Iconz Business Solutions anticipate the broader picture. We help you to identify solutions that other organisations might overlook.
What is included in accounting?
Accounting combines the financial information into an understandable form for all the company stakeholders. The stakeholders will be able to assess the performance of the business from these accurately managed financial statements. So the basic tasks that come under accounting are:
- Prepare Financial Statements
The financial statements are prepared while the budget is prepared. It can also be created in order to gather funds from investors. Accountants are entrusted with the responsibility of creating financial statements on a regular basis. These financial statements include the balance sheet, cash flow statement, and also income statement.
- Financial Planning
Accounting helps to look into the broader scenario of financial planning required for the business. Accountants can provide specific advice related to reducing unwanted expenses. Accountants can also give information regarding the ways in which revenue can be increased and be more profitable. In a broader aspect, accountants can also give the advice to expand the business.
- Revenue & Cost Analysis
Accountants take inferences by observing the financial records. A firm’s profit or loss is basically dependent on its costs and revenue. Accountants perform the analysis so as to understand the firm’s performance. Accountants also use the help of historical data to determine the trends in business activities.
- Tax Compliance
Businesses are required to file their tax returns at the end of the tax year. Tax reports are prepared to assess the tax payable to the authorities. These reports are prepared with the help of financial records. Accountants help to calculate the exact amount to be paid with ease. Failure to keep the tax affairs updated will lead to levying hefty fines. Accounting plays a critical role in order to avoid such setbacks.
- Evaluate Business Development
Businesses are always started with the aim to grow. The process of accounting helps to understand the growth occurring in the business. This is done by analysing the financial records. The performance of the business can be evaluated on the basis of comparing the profit and growth aspects of the business. This can help to plan future strategies depending on the areas of progress the business makes.
Major differences between bookkeeping and accounting
- Bookkeeping provides the basic input for accounting; thereby, it acts as a foundation for accounting. Bookkeeping is only a segment of the larger process of accounting.
- The level of complexity involved in bookkeeping is comparatively less, while the process of accounting involves a high level of complexity.
- The major purpose of bookkeeping is to maintain financial transactions in a systematic and chronological manner. On the other hand, accounting is done to understand the financial situation of the business and to communicate the insights to relevant parties.
- Business management cannot make crucial decisions based on the bookkeeping data provided. But crucial and significant business decisions can be taken by the management from the accounting data.
- The preparation of financial statements is not usually a part of the bookkeeping process. Financial statements are prepared during the accounting process.
- The process of bookkeeping is done in accordance with the accounting concepts, whereas the accounting procedures used for interpreting the financial reports can vary from one firm to another.
- Bookkeeping is a clerical job by nature. So, it is not necessary for bookkeepers to possess any particular skill set. But accountants, on the other hand, should possess knowledge of various accounting practices and also analytical skills.
- The major tools used in bookkeeping are journals and ledgers. But the tools used in accounting are profit and loss, balance sheet, and cash flow statement.
- Bookkeeping has internal users like the managers, employees and owners. But accounting has not only internal users but also users external to the business entity.
The two careers are similar, and accountants and bookkeepers often work side by side. These jobs demand their own skills and attributes.
Bookkeeping involves providing keen attention to a lot of specific details. The records must be kept in a systematic manner so as to provide accurate data for accounting. Meanwhile, accountants use the input provided by the bookkeeper to prepare the financial statements. The accountant needs to look into the broader aspects of the decision-making process.
Though bookkeeping and accounting are often used interchangeably, the activities conducted by them have their own differences. Basic bookkeeping activities involve:
- Preparation and sending of invoices to customers and also to suppliers
- Recording the payment received from the customers
- Record, processing and payment of invoices from suppliers
- Recording and monitoring inventory changes
- Processing payroll and petty-cash transactions
- Categorising credit cards and other related expenses
- Monitoring late payments and sending reminders to the impacted parties
Basic accounting activities involve:
- Creation and management of the Chart of Accounts
- Creating and maintaining financial statements
- Record the accrued revenues and deferred revenues and expenses
- Creating a budget and making comparisons against actual expenses incurred
- Determining the estimated tax and preparing tax documents accordingly
- Identifying potential profit-maximizing opportunities
Know Your Requirements
The business can vary in terms of many aspects. Both bookkeepers and accountants have equal and important responsibilities to play irrespective of the nature of the business. Understanding the subtle differences between the functions will help to decide what best suits your business. Knowing your business requirements and taking informed decisions will always keep the business on the correct path of development.
Small business owners can do their own bookkeeping tasks on a daily, monthly, or quarterly basis. This can be then given to an accountant for further action. But large business owners employ a professional bookkeeper and will also have an accounting department.
So, prior to hiring, it is important to know your business and its requirements. The development of the business must also be taken into account. Iconz Business Solutions has a proven track record of leading several companies to success with our dedicated team for accounting and bookkeeping services.
There are a few instances that can help to decide to go for professional help with the business:
- Complex taxes: If the taxes are too difficult to manage by yourself and you are burdened with multiple income channels, several deductions, or other considerations, it is high time to seek the help of a professional accountant. An accountant can narrow down the burden of workload and help you stay on top of other important functions.
- Accumulating accounting tasks: If the practice has been of spending too much time on accounting tasks and no time to manage the business, then things might go out of hand. It will be more assuring if the accounting tasks can be entrusted to an accountant, and you can concentrate more on developing your business entity.
- Growth in business: The initial accounting tasks while starting the business will be manageable. But once the business is in the growth phase, managing the accounts can be a tedious task. This can be the right time to hire a bookkeeper, and gradually, with the development of business, an accountant can also be hired.
When looking for a certified professional, it is important to know your requirements. First, it must be decided whether to hire an independent consultant, consult a firm, or hire a full-time employee. Prior to hiring an independent bookkeeper or accountant, it is important to verify the credentials of the individual. Perform initial screening tests and check the certifications provided by the applicants. We at Iconz Business Solutions provide the services that can help to grow your business and stay stress-free from all other business-related worries.