Accounting and Bookkeeping are related but distinct disciplines essential for any business's financial management. Bookkeeping involves recording and organising financial transactions such as sales, purchases, receipts, and payments. This process requires accurate data entry and categorisation of financial transactions to ensure that the company's financial records are up-to-date and accurate.
As a business owner, it's essential to clearly understand the financial processes that can help your business stay on track. Two of the most crucial strategies you must consider are Bookkeeping and Accounting. Bookkeeping is keeping accurate records of all your business transactions, while Accounting involves presenting financial information in various reports, such as balance sheets and income statements. In this article, we'll discuss the benefits of bookkeeping services and how combining Bookkeeping and Accounting can help your business succeed.
What does a bookkeeper do?
Bookkeeping is recording and organising financial transactions in a systematic and organised manner. It is the first step in the accounting process and is critical for the accuracy of financial statements. Bookkeeping involves recording all transactions, including sales, purchases, receipts, and payments. These transactions are then classified, analysed, and summarised into financial reports, including balance sheets, income statements, and cash flow statements.
The primary goal of Bookkeeping is to ensure that financial transactions are accurately reported. This includes maintaining an accurate record of all accounts receivable and accounts payable, ensuring that all expenses are accounted for and that all financial transactions are appropriately documented. An accountant then uses the 'books' that the Bookkeeper maintains to prepare financial reports and file tax returns. Some accounting practices offer Bookkeeping as part of their service, so everything's under one roof.
How to do Bookkeeping? And how much should you do yourself?
You can practice good Bookkeeping yourself using bookkeeping software like Xero. However, if you need help keeping tabs on all your invoices, supplier invoices, and bank reconciliations, it's time to ask for help. Outsourcing to a bookkeeper can maintain accurate financial records. Bookkeepers typically charge anywhere from $60 per hour, but value-based fixed fee packages are available to assist your cash flow and ensure your lodgements are compliant.
Keeping your financial records accurate and up-to-date can benefit you thoroughly if you run a business to make important decisions. Outsourcing your Bookkeeping to a professional lets you focus on your business while they take care of the paperwork. This can help you save time and money, as you won't have to worry about keeping up with the latest accounting laws and regulations. Bookkeeping services can also help you avoid end-of-year panic by ensuring your financial records are up-to-date and ready for tax season all year round.
What is Accounting?
Conversely, accounting entails preparing various financial reports, including balance sheets and income statements, to present financial information. An accountant is a finance expert who manages your tax affairs on your behalf. They provide up-to-date monetary business advice and help you run a tax-efficient operation.
When should you use the services of an Accountant?
While you don't necessarily need an accountant to file your self-assessment tax return, it's worth considering their services to ensure you're not paying more income tax than you should. For example, you might need to correctly use your allowable expenses or set up a tax-efficient payment structure. Accountants can also suggest the most tax-efficient structure for your business, which can help you save money in the long run. This is especially important if you're unfamiliar with accounting and tax laws.
Another critical difference between Bookkeeping and Accounting is the education and training required. Bookkeepers typically have a diploma or certificate in Bookkeeping, while accountants need a degree in Accounting or a related field. Accountants must also pass a rigorous certification exam to become a Certified Public Accountants (CPA).
How to combine Bookkeeping and Accounting for your small business?
Combining Bookkeeping and Accounting is crucial for a business as it ensures a close relationship between the two processes. Good Bookkeeping makes an Accountant's job easier, as it provides them with accurate financial data to work with. When financial records are organised correctly, accountants can quickly access the information they need to create financial statements or prepare tax returns.
In addition, good Accounting ensures that all the hard work put into Bookkeeping is properly used. Accountants use the data bookkeepers collect to provide valuable insights into a business's financial performance, such as identifying areas for improvement and making strategic decisions.
Another benefit of combining Bookkeeping and Accounting is that it helps reduce the cost of Accounting services. Good Bookkeeping means fewer queries to address, reducing the time and effort Accountants require to prepare financial statements or tax returns. This, in turn, leads to a lower bill for Accounting services.
Bookkeeper can also help set-up your accounting software which can significantly ease the burden of managing bookkeeping and accounting tasks. Accounting software programs offer a range of features that can streamline your financial operations, such as:
Automated form filling
Statement processing, and generating estimates.
These programs can also help you keep track of due payments and budget bills and monitor employee results. By combining these functions in a single software platform, businesses can save time and improve efficiency in their financial management processes.
Having multiple software programs to handle different financial functions can be overwhelming and result in wasted time switching between programs. However, with accounting software, businesses can manage financial data in one place, which makes it much easier to track all transactions and financial records. All this data collected can be analysed more efficiently, gain insights into your business's financial health, and make more informed decisions.
Investing in an accounting software program is a strategic decision that can benefit any business owner who wants to enhance their financial management capabilities. Additionally, some accounting software can integrate with other business tools, such as CRM or inventory management systems, further streamlining business operations.
Therefore, accounting software has become an indispensable tool for businesses of all sizes. The benefits of streamlined processes, improved efficiency, and better financial insights are just a few reasons why investing in accounting software is a wise decision for any business owner looking to improve their financial management.
As you can now see Bookkeeping and Accounting are critical functions for any business owner to be aware of. While they may seem similar, understanding their discrepancies can help you make informed decisions about managing your finances.
Contact us today to learn how combining Bookkeeping and Accounting services can benefit your small business. Bookkeeping N More is a small business based out of Adelaide Hills and offers bookkeeping services to give small businesses the freedom to focus on what matters: growing their business!