Small businesses require close tracking of expenses and cash flow. It’s important for business owners to ensure their finances are handled, which includes recording transactions and assessing or processing data. While this may seem easy enough to do independently, it can be more difficult and time-consuming than you realize.
There are two types of financial helpers for these endeavors – bookkeepers and accountants. Understanding the difference between the two is crucial before settling. Bookkeepers record a company’s day-to-day transactions, while accountants verify and analyze that information – but there’s much more to it. Here’s what you need to know before hiring either of them for your business.
Bookkeeping vs. accounting
A bookkeeper records daily financial transactions, including purchases, receipts, sales and payments, usually through a general ledger or journal. Many small businesses use software such as QuickBooks or Peachtree to keep track of their entries, debits and credits. Their efforts culminate in a trial balance, which means the final total of debits and credits match. [Looking for accounting software? Check out our best picks.]
“Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and accounting professor in the University of Wisconsin Whitewater Department of Accounting. “Accounting is designed to turn data into information.”
The role of an accountant, therefore, is to verify the data entered, and then use it to generate reports, analyze the account, perform audits and prepare financial reporting records, like tax returns, income statements and balance sheets. An accountant’s analysis can provide information for forecasts, business trends, opportunity for growth and when to restrict spending to manage cash flow.
“Accountants look at the big picture,” wrote John Tracy in his book “Accounting for Dummies” (For Dummies, 5th edition, 2013). “[They] step and back and say, ‘We handle a lot of rebates, we handle a lot of coupons – how should we record these transactions? Do I record just the net amount of the sale or do I record the gross sale amount, too?’ Once the accountant decides how to handle these transactions, the bookkeeper carries them out.”