When one started a business, then there would be a requirement of bookkeeping and accounting. These terms actually don’t mean the same thing. Small businesses have accounting as well as bookkeeping because they are synergistic.
Bookkeeping is the process of keeping records of the company’s financial transactions on a daily basis. While bookkeeping, a professional needs to keep the records of expenses, sales, cash and bank transactions of a business in a general ledger.
When you start a business, then you have to develop habits of keeping a record of journal and ledger. The accurately maintained ledger is actually the base of any company’s finances. Along with keeping records of the transactions, it is the duty of the bookkeeper to create invoices and complete payroll. The bookkeeping process, its complexity, based on the size of the business along with the transactions which are conducted on a daily, weekly or monthly basis.
There are two bookkeeping methods and their single entry and double entry. Many businesses use the double-entry bookkeeping systems where an accountant is required to make the corresponding and opposite entry to a different account. Bookkeeping can be done on a spreadsheet or any lined piece of paper. Today, there are many automated processes for the same are available and one can use the software which intertwines some of the components in the accounting process. The main focus of a good bookkeeper is to stick with completeness and accuracy. Possibly, the bookkeeper can make a mistake and so, they work under the direction of an accountant.
Accounting is known to be the language of any of the business. Accounting includes the way of calculating, processing and communicating financial information. Accounting offers the information to the business owner regarding the company’s resources, finances and how the business can achieve results by using the same.
The accounting function is to creating and keeping the record of the financial affairs of any of the company. Accounting also includes the numbers’ interpretation that is done by the bookkeeper so that the business health can be detected. The financial health of a business can be presented with preparing financial statements and the indicators which are derived from them.
There are two methods of accounting. One is based on the available cash along with the cash you receive and the other is accrual basis accounting. If you have accounts or having the possibility of being audited, then you would require to use accrual basis accounting under the generally Accepted Accounting Principles which are thereby Financial Accounting Standards Board.
Other than that, cash-based accounting is quite simple to accrual basis accounting. With cash-based accounting, the record revenue would record at the time of receiving the same and payments are recorded when they are getting done. This method can be used for small businesses in a service industry that has no inventory.
The accrual basis accounting methods rely on the revenues earned rather than received. This can be thought of value that is exchanged between accounts. When you make purchases, you then need to transfer the amount from the cash account to the equipment account. Credit is stored in the cash account, whereas, debit is recorded in the equipment account. When you maintain the chart of accounts, then it helps to decide when you need to make credit or debit accounts.
The accounting function can, in fact, outsourced to the private entity. Some of the small businesses outsourced both accounting and bookkeeping. In case, you are planning to outsource accounting and bookkeeping, then you should be familiar with both and understand the reports you will receive.