Bookkeeping and accounting allow companies to rest these needs in the hands of a specialized third party. The financial experts you hire hold extensive experience in their field and manage these tasks for multiple companies simultaneously. So, although they don’t work as your in-house team, they save you considerable money in handling an internal team while offering exceptional outcomes in terms of business finances.
Whether a small organization or a large company, you can outsource bookkeeping and accounting and reap significant results. For instance, an internal accounting team may work lethargically or mess up the system for one reason or another. However, outsourcing professionals will keep everything in order so your work is streamlined and efficient. Since their services affect their reputation and positioning in the market, they’ll provide you with exceptional results, a well-seasoned team, and perfect financial records.
The need for a professional bookkeeping team may arise when firms can’t find a suitable financial management tool or when the existing team gives them trouble. The cost and expertise advantage over the internal team prompts firms to switch, making outsourcing popular recently. So, check a particular company’s credentials, certifications, and reviews to ensure you make the fittest choice for your firm.
State the Significance of Quality Accounting and Bookkeeping to a Firm
Bookkeeping involves maintaining financial books and accounts according to accounting methods and regulations, whereas accounting facilitates a firm’s stakeholders to understand a firm’s financial performance and position. While bookkeeping handles the initial preparation aspects of financial records, like invoices, inventory management, purchase and selling documents, etc., accounting cumulates this information and results in financial statements, like cash flow, income, balance sheet, etc.
The importance of bookkeeping and accounting is thus evident as follows:
Assess Financial Performance and Positioning
Bookkeeping and accounting allow insights into a firm’s financial performance and position, which is helpful for the management and external stakeholders to make better decisions.
Project the Future through Budgeting
Users can create budgets based on historical financial data to manage uncertainties and complexities properly.
Adherence to Statutory Rules
Businesses can ensure compliance with statutory laws regarding financial transparency and profitability reports through effective financial management.
Stock Exchange Listing and Tax Purposes
When companies maintain accurate financial and bookkeeping records, they can file their taxes and list the firm on the stock exchange when needed.
Several other critical factors influence a firm to focus on basic financial management needs. Firms will have no economic future and will soon doom without seamless financial planning and management.
What are the Different Types of Accounting?
Accounting offers insights into a company’s economic aspect- financial standing, performance, prospects, etc. However, accounting further has different branches catering to particular sections. If you’re wondering what the types of accounting are, we have gathered and explained them briefly below:
Financial Accounting
The primary accounting type facilitates transaction recording and categorization for the preparation of financial statements. It’s an eight-step procedure, which must follow the Generally Accepted Accounting Principles (GAAP) and SEC rules.
Tax Accounting
Tax accounting is necessary to adhere to the Internal Revenue Codes. A tax accountant assists you in filing taxes, paying exact amounts, and minimizing expenses by availing of deductions and credits.
Management Accounting
Unlike financial accounting, when a company’s financial statements are compiled and reviewed for internal management only, it is known as managerial accounting.
Cost Accounting
Cost bookkeeping and accounting cater to the firm’s cost structure with insights into direct, indirect, and other expenses. Firms can maintain cost efficiency through assessments offered by cost accounting.
Auditing
Auditing and assurance as an accounting activity ensure the statements prepared are fair, accurate, honest, and transparent. It involves independent financial analysis to ensure no fraud, mismanagement, or resource wastage.
What are the Different Kinds of Bookkeeping?
Bookkeeping involves preparing financial records systematically by identifying the relevant transactions, storing, and organizing them. A smooth economical functioning requires having a robust bookkeeping procedure.
What types of Bookkeeping is a pressing question that may arise while operating a business. Here are the in-depth details of different types of bookkeeping:
Single Entry Bookkeeping
Under the single-entry bookkeeping system, every transaction only has one entry. For instance, a single entry indicating sales would appear if the firm has sold products worth $400. Unlike double-entry, there’d be no debits and credits, meaning no cash inflow/ sales entry.
Single-entry bookkeeping suits small organizations with significantly lower income and expense transactions. Here, no record of assets and liabilities exists.
Double Entry Bookkeeping
Mostly all businesses use double-entry bookkeeping to record their financial transactions, like sales, purchases, income, expenses, etc. It means every trade has two aspects: debit (Assets and expenses) and credit (liabilities and income). Thus, every transaction ultimately affects at least two accounts or more.
Firms with a massive trade volume and complex transactions benefit from double-entry bookkeeping and accounting.
Both double-entry and single-entry systems have their benefits and drawbacks. Therefore, firms must consider this basic requirement before proceeding further with any finance-related activity.
How Are Accounting and Bookkeeping Alike?
Whether it is managing the books or handling the accounts of an organization, booth tasks stem from the same place and ultimately have the same intention. The difference is that bookkeeping activities are preliminary to accounting and form the basis for accounting operations.
The distinguishing factors also explain the similarities between the tasks performed by bookkeepers and accountants. Here we have pointed out all the elements that are alike in accounting and bookkeeping:
Organizing Financial Data
Accounting and bookkeeping focus on preparing and organizing financial data to allow internal and external stakeholders to make enlightened decisions.
Basic Accounting Knowledge is Must
Both bookkeeping and accounting require aspirants to know the accounting fundamentals. As you continue upgrading your knowledge, you can get promoted from a bookkeeper to a certified professional accountant.
Small Firms Experience Overlapping Roles
Firms with lesser trading volume and financial transactions may let a bookkeeper handle their accounting. A separate accountant may not be necessary if the bookkeeper is proficient in handling the accounts well.
Maintaining Tax Compliance
The end focus for both accounting and bookkeeping lies in maintaining tax compliance through their operations. So, both parties will ensure no breach of regulations.
Thus, these similarities indicate how managing books and accounting depend on and complement each other instead of substituting.
Differences Between Bookkeeping and Accounting
Both managing the books and handling the core accounting may originate from the same place but include diverse tasks, making them different activities. While bookkeeping is the initial phase of identifying, gathering, and organizing transactions in books and records, accounting extracts their meaning through financial statements reflecting a firm’s economic health and performance.
We have listed the points of difference between bookkeeping and accounting below:
Meaning
Bookkeeping caters to identifying and recording transactions only in the accounting books. On the other hand, accounting facilitates interpretation, assessment, summarizing, and sharing the results with the firm’s stakeholders.
What’s Useful in Decision Making
Since bookkeeping only offers entries of daily transactions and not a summarized view, it can’t help in decision-making. In comparison, accounting provides insights into a firm’s financial movement, which managers and external stakeholders can use for informed decisions.
Knowledge Level Required
A bookkeeper can get away with fundamental accounting knowledge as they are not concerned with the analysis and financial statement preparation. However, an accountant needs to be up-to-date with the accounting standards, methods, regulations, etc., to ensure accurate client services.
Task Differences
A Bookkeeper does the following activities:
● Maintains the daily record of income and expenses
● Handling customer invoices and accounts receivable
● Undertaking periodic bank reconciliations
● Monthly financial statements generation
● Payroll Processing
● Books/ tax documents preparation for the accountant
In contrast, an accountant does the following:
● Enter adjusting entries where needed
● Operation cost analysis
● Offer advice to business owners for financial decisions
● Financial statement review and analysis
● Auditing ● Tax planning, filing, and advisory
Is Hiring an Accountant Better or a Bookkeeper?
Depending on your business trading volume, routine transactions, and accounting requirements, you may benefit from either/both a bookkeeper or an accountant. So, when answering Is an accountant better than a bookkeeper for your business, you must consider the factors affecting your circumstances.
A bookkeeper may be a healthy choice for a small business with precise accounting needs and operations. However, an accountant becomes the preference as your scale grows and complications entangle your business. It is because the expertise level varies among bookkeepers and accountants.
An accountant possesses advanced knowledge of accounting concepts, methods, and procedures and bears the capacity to offer advice when it comes to financial decision-making. However, you cannot expect the same to happen with a bookkeeper as their knowledge scope is narrow.
The battle between who’s better among the two is irrelevant as both serve particular purposes in a firm. However, you must hire someone who correctly accomplishes your daily bookkeeping needs and goals.
Throw Light on Accounting and Bookkeeping Software and Tools
Accounting software has become the need of the hour, considering automation and its necessity in the current times. The time-saving and quick solutions tools make it seamless for every firm to trust and adopt them.
Since accounting and bookkeeping are tedious and complex, there’s nothing better than one package with all the tools and features to automate, streamline, and quicken your processes. Here are our top bookkeeping Software tool recommendations you must try for your business:
QuickBooks
Intuit QuickBooks is undoubtedly the primary choice in all businesses’ business finance management software market. One main dashboard contains links and buttons to all the tools and features you need to access, inducing flexibility and efficiency in bookkeeping operations. Further, extensive online support, forums, and QB specialists are available to satisfy your queries regarding the tool.
Xero
Xero is another cloud-based application with a clean interface and complete integrations with a third-party payroll service.
FreshBooks
With more invoicing customizations than other software, FreshBooks fulfills primary business accounting requirements for service-based firms.
These are a few suggestions you may consider when getting an accounting tool for yourself.