hen it comes to understanding how your small business is doing, looking over financial transactions should be a top priority. From ensuring tax returns are filed correctly to forecasting sales accurately, there are so many reasons for your small business to practice healthy bookkeeping and accounting.

But what’s the difference between bookkeeping and accounting? Understanding the difference is crucial to submitting appropriate documentation and finding accurate data. In general, bookkeeping is where you or a professional gathers financial data and sorts them into the right places. Accountants (like Certified Public Accountants) will take it one step further and help you analyze them.  

What is Bookkeeping?

Bookkeeping is a series of tasks designed to organize, record, and track all the financial details of your business. More specifically, it ensures all your income and expenses are recorded and organized in the right places, such as dates and business categories. Small businesses hire bookkeepers to help with bookkeeping tasks such as bank reconciliations and recording journal entries. They’ll either use manual processes such as recording data on spreadsheets or with the help of business bookkeeping software or bookkeeping services. The point of bookkeeping is to make sure you have all your records as accurate as possible to help the accountant with their tasks like filing taxes. Think of it as part of the entire accounting process — you’re getting your business accounts ready for more complex tasks. Bookkeeping can also help you look at numbers, update your business budget, or see where to focus on your sales by gathering data. It’s crucial that a bookkeeper (even if it's you) catch tiny or hidden mistakes. Even a small one can affect your business.  

What is Accounting?

Accounting goes beyond looking at the numbers on the surface and will need to analyze them — though part of the accounting process is bookkeeping. This includes looking at sales data to help suggest ways to change your marketing strategy, for instance, or make data to help optimize your taxes.  

Accountants are the ones who are tasked with these types of responsibilities since they’re the ones who tend to have the specialized knowledge to look at the bigger picture. For instance, accounting requires more logic and problem-solving skills. It relies on bookkeeping to draw conclusions about the company’s finances, and hence, how it’s doing.  

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What is the Difference Between Bookkeeping Vs. Accounting?

The differences between accounting and bookkeeping are in the way either works with financial data. Bookkeeping (or bookkeepers) are the ones to record the day-to-day financial transactions for a business. Accounting (or accounts) looks at the data in financial statements and uses it to focus on the bigger picture. In other words, bookkeeping focuses on the details, such as putting the numbers in the right places (such as income or expenses) and the proper categories. For instance, bookkeepers will need to look at a business checking account to ensure they’ve recorded all bank deposits within a specific time period.  

Accounting will take these transactions and complete tasks such as forecasting future needs for the business or conducting audits. For instance, an accountant or accounting software can look at how much your small business could pay in taxes in the current fiscal year and suggest action items to help reduce your tax obligation. They could also look at what business expenses seem excessive or unnecessary and make suggestions to adjust the budget accordingly.  

Can I Be My Own Bookkeeper?

Yes, you can if you’re willing to take on the responsibility and are patient with yourself while learning the ropes. You’ll also want to be comfortable with being extremely detail-oriented, organized, and keeping up to date on your booking tasks. Having a background in accounting is helpful but not necessary.

To make it easier on you, you can enlist the help of automation — in other words, bookkeeping software. Novo integrates with bookkeeping software such as Quickbooks and Xero. In just a few clicks, you can have your financial data syncing automatically between the two platforms. All you have to do is go over the transactions to make sure they’re all accurate and recorded correctly.  

Can I Be My Own Accountant?

While small businesses or solo business owners can do their own accounting tasks or use accounting software, it’s generally better to hire someone such as a CPA to do so. This accounting professional is trained on the latest tax laws and regulations and can provide you with expert advice on what you can do to help your business from a financial standpoint. They will create a robust accounting system for your small business. Think of this person as being on your team to help you look at the bigger picture and complex tasks.  

Enrolled Agents, a specialized type of accountant, can help advocate on your business’ behalf when you have issues with the IRS. Certified Public Accountants can also look at how your business is structured and advise how to best set it up. For instance, if you’re currently a sole proprietor and may be better off restructuring as an S-Corp, your CPA can give you the reason why it may be worth the extra paperwork and potential expenses.  

Accountants can also help give a better picture of your financial information and financial health using your financial reports. Besides, hiring a CPA doesn’t have to cost a ton of money. Even if it seems like a lot, hiring one may be well worth it if they can help you save on taxes, help with business growth. As in, hiring one could give you a solid return on your investment.  Outsourcing your bookkeeping or accounting tasks could be a smart idea no matter what size your business is depending on your business needs. It can free up your time to focus on your business strengths and receive valuable insights and financial advice from experienced professionals on achieving business growth and stability in the long run.

December 7, 2021
Banking 101