While bookkeeping and accounting both support healthy finances and accurate financial records for businesses, they are not the same thing. Although they work together, they perform separate functions and require different skillsets. And if you want to make wise financial decisions (and avoid costly tax penalties), you need both.
Bookkeeping is actually a building block for good accounting. With greater accuracy and organization in your ledger, you set yourself up for greater success with accounting.
If you find that your business is struggling with financial forecasting and analysis, you might benefit from stronger foundational bookkeeping. Hiring a bookkeeping service can be a great way to strengthen your business’s finances. While many small business owners start out handling the finances themselves, hiring financial professionals can bring huge benefits for their business. The knowledge of financial best practices can help keep your business healthy and growing.
However, you may not know what kind of financial help you need. If that is the case, let’s dive deeper into the differences between bookkeeping and accounting.
What Is Bookkeeping?
Bookkeeping is typically defined as financial record keeping. Bookkeepers track and organize financial data as it comes in, recording financial transactions and collating that data into financial reports. This means tracking all credits and debits, including sales, expenses, taxes, revenue, investments, bank statements and more. It also includes balancing bank ledgers, reconciling bank statements, and making sure all financial data is as accurate as possible.
A bookkeeper uses this detailed financial data to generate reports and invoices, do payroll processing, and prepare other financial statements that are necessary for the accounting process. Typically, a bookkeeper doesn’t make suggestions or forecasts, but simply reports the financial data.
Bookkeeping may require certifications or licenses, but is not necessarily a degreed position. However, the qualities of a great bookkeeper include a keen eye for detail, meticulous recording-keeping and organizational skills, and good interpersonal skills. For larger businesses, or businesses with high transaction volume, efficiency and math skills are also extremely important qualities.
What Is Accounting?
While bookkeeping is strictly factual, accounting services are more subjective and analytical. Accounting analyzes bookkeeping data to create models, make forecasts, and aid business decisions about the future direction of the company.
Accounting takes the bookkeeping reports to develop a more comprehensive picture of the financial health of a business and articulate that financial position to the stakeholders. They may look at the overall economy, and the business’s place within the current economy and interest rate environment, to help guide the business finances.
An accountant must have a bachelor’s degree, and can pursue further credentials like becoming a Certified Public Accountant (CPA). An accountant’s education includes strategic financial planning for growth and success.
Poor Record-Keeping Leads to Costly Mistakes
Many small organizations operate with the business owner and employees each filling multiple roles within the company. Often, that means the person responsible for handling the bookkeeping and accounting functions will lack specialized training, and have a different primary role that takes the majority of their time.
As the business grows, record-keeping is often one of the first tasks to fall by the wayside. At first, financial information doesn’t get recorded in a timely manner. Next, small errors start appearing in the ledger. Eventually, financial details don’t get recorded at all. This can lead to dire circumstances at tax time, including inadvertent tax fraud!
Keeping an accurate ledger is critical to avoiding debts and late fees, filing taxes correctly, maintaining healthy business finances, and even keeping customer satisfaction high. The direct costs of tax troubles—not to mention the opportunity costs of having to rely on poor financial data, and spend valuable time staying on top of financial transactions rather than focusing on other areas of your business—quickly start to add up.
While a good bookkeeping software or accounting software can potentially simplify some of the bookkeeping process, and even automate some recordkeeping, they aren’t a substitute for training and experience. And if you’ve still got your hands full serving your customers or focusing on other aspects of your business growth, it’s still time you don’t have.
The Benefits of Hiring Bookkeeping Services
For most small businesses, investing in quality bookkeeping services and staying on top of the company’s financial data can pay for itself many times over—especially during times of business growth.
If you’ve been doing your own bookkeeping but now find that you don’t have the time or skillset to record daily transactions and keep meticulous financial records, it’s time to hire a bookkeeper.
Hiring an organized, detail-oriented bookkeeper will save you time and money, and save you the hassle of trying to trace the origin of errors on your books. With an experienced bookkeeper taking care of the finer financial details, you’ll be free to focus on making connections with your customers and growing your business.
One of the biggest benefits of hiring a bookkeeper is that they can help you avoid errors and miscategorizations. This mitigates the risk of problems with your tax returns, including the potential for tax audits. You certainly don’t want the IRS to be the ones looking for typos in your ledger.
With a bookkeeping service like S.H. Block, you can scale your bookkeeping needs with your business. If you don’t need a full-time bookkeeper yet, you can find a proficient financial professional to handle bookkeeping tasks on a part-time or contract basis.
Contact S.H. Block Tax Services for Your Bookkeeping Needs
If maintaining an accurate ledger is becoming a struggle, talk to S.H. Block Tax Services about hiring a bookkeeper. Our financial expertise will give you peace of mind, knowing that tax filing, payroll processing, and financial transactions and statements are handled by careful and organized professionals.
In fact, our bookkeeping agent on staff majored in business with a concentration in accounting. Margaret Tabb has over 30 years of accounting and tax experience. Far more than just a record-keeper, Margaret helps clients with tax preparation, filing for business loans and grants, and more. You can be assured that your finances are in good hands with S.H. Block Tax Services.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.