17 January 2020
Starting a new business? Or has your business grown and along with it your financial and bookkeeping needs? If you’re looking to hire a professional to handle the books for you, take a short read on the difference between the two roles. At WJ Mitchell we handle all aspects of finances so we are able to take on both roles and more.
- Bookkeeping is a direct record of all purchases and sales that your business conducts, while accounting is a subjective look at what that data means for your business.
- An accountant can be considered a bookkeeper, but a bookkeeper cannot be an accountant without proper certification.
- To know whether you need a financial professional, assess the current financial position of your business, compare that to how you want your business to grow financially, and decide if you can manage that on your own.
This article is for business owners who are deciding whether they need to hire an accountant or bookkeeper.
Staying on top of your finances is a key part of being a successful small business owner. As such, it's important that your financial data is current and accurate so that you have the tools you need to make sound business decisions and ensure healthy cash flow. As your business grows to include more customers, vendors and employees, it can get more difficult to keep track of your finances on your own.
When the bookkeeping and accounting tasks for your small business are too much to handle by yourself, it's time to hire help. But do you need a bookkeeper or accountant? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are distinct differences.
Here's what you need to know to decide which is best for you.
Bookkeeping vs. accounting
Bookkeeping is a transactional and administrative role that handles the day-to-day task of recording financial transactions, including purchases, receipts, sales, and payments. Accounting is more subjective, providing business owners with financial insights based on information taken from their bookkeeping data.
Bookkeeping is designed to generate data about the activities of an organization. Accounting is designed to turn data into information. Bookkeepers handle the day-to-day tasks of recording financial transactions while accountants provide insight and analysis of that data.
What does a bookkeeper do?
Bookkeeping, in the traditional sense, has been around as long as there has been commerce – since around 2600 B.C. A bookkeeper's job is to maintain complete records of all money that has come in and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way, and their records enable the accountants to do their jobs.
These are some typical bookkeeping tasks:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Managing payroll
- Maintaining and balancing ledgers, accounts, and subsidiaries
One of the main duties of a bookkeeper is maintaining a general ledger, which is a document that records the amounts from sale and expense receipts. Ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks and Xero, to track their entries, debits, and credits.
Each sale and purchase made by your business must be recorded in the ledger, and some items will need documentation. You can find more information on which transactions require supporting documents on the SARS website.
There are not any formal educational requirements to become a bookkeeper, but one must be knowledgeable about financial topics and terms and strive for accuracy. Generally, a bookkeeper's work is overseen by an accountant or the small business owner. A bookkeeper, though, is not an accountant, nor should they be considered to be an accountant.
Bookkeepers can record financial transactions, post debits and credits, create invoices, manage payroll, and maintain and balance the books.
What does an accountant do?
An accountant analyzes the financial data recorded by the bookkeeper and provides business owners with important business insights and financial advice based on that information.
These are some typical accountancy tasks:
- Verifying and analyzing data
- Generating reports, performing audits, and preparing financial reporting records like tax returns, income statements, and balance sheets
- Providing information for forecasts, business trends and opportunities for growth
- Helping the business owner understand the impact of financial decisions
- Adjusting entries
The accounting process produces reports that bring key aspects of your business's finances together to give you a complete picture of where your finances stand and what they mean, what you can and should do about them, and where you can expect to take your business in the near future.
There is a difference between an accountant and a certified accountant (CA). Although both can prepare your tax returns, a CA is more knowledgeable about tax codes and can represent you before SARS if you're audited.
Accountants generally must have a degree in accounting or in finance to earn the title. They may then pursue additional certifications, like the CA. Accountants may also hold the position of bookkeeper.
Accountants verify and analyze data, generate reports, spot trends and provide business owners with insights from the financials.
What credentials does an accountant need?
Accountants have varying qualifications depending on their experience, licenses and certifications. To become an accountant, the individual must earn a bachelor's degree from an accredited college or university.
A CA is an accountant who has met the requirements and passed the CA exam. They must also meet ongoing education requirements to maintain their accreditation.
When you're interviewing for a CA, look for an accountant who understands tax law, accounting software and has good communication skills. They should understand the industry you operate in and the special needs and requirements of small businesses.
Still not sure if you need to hire someone to help with your books? Here are three instances that indicate that it's time to hire a financial professional.
- Your taxes are complex. If your taxes have become too complex to manage on your own, with multiple income streams, foreign investments, several deductions or other considerations, it's time to hire an accountant. An accountant can save you hours of time and help you stay on top of important matters like payroll, tax deductions and tax filings.
- You're spending more time on accounting tasks than growing the business. If you are spending so much time taking care of accounting tasks that you're not able to work on growing your business or keeping existing customers happy, you're doing your enterprise a disservice. You may be able to make more money long term if you leave the accounting to the experts and focus on your growth prospects.
- Your business is experiencing growth. Doing your accounting yourself may be fine when your business is small, but if your business is in growth mode, it may be a sign that it's time to bring on someone to help. You could start by contracting with a bookkeeper who balances the books once a month and a CPA who handles your taxes. Then, as your bookkeeping needs increase, you could bring someone on staff.
Whether you hire an accountant, a bookkeeper, or both as in using the services of WJ Mitchell and Associates, it's important that the individuals are qualified by asking for client references, checking for certifications or performing screening tests.
When your business is growing, you're spending too much time on non-growth aspects of the business, or your taxes and finances are becoming too complex to manage by yourself, it's time to seek help from a financial professional.
Looking for the right accountant or bookkeeping service for your business or personal needs - Contact Us and we will tailor make a package for you.
Source: Adapted from The Business News Daily
https://www.businessnewsdaily.com/15357-15-accountant-bookkeeper-differences.html