You can hire a bookkeeper instead of an accountant. But, does that meet all of your business needs?
The answer is important because you need an efficient system to manage your accounting operation. You also need accurate financial data to make informed business decisions. Without that information, you’re flying blind.
The first step is to understand the accounting tasks that must be completed each month and year.
Understanding the accounting cycle
To understand the differences in accounting roles, you need to review the accounting cycle, a system every business must set up to generate accurate financial statements.
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A bookkeeper or an accounting professional must perform each of these steps:
Chart of accounts
Create a chart of accounts, which is a list of each account needed to manage the business and a corresponding account number. As your company grows, you may add, subtract or change the accounts used to post transactions.
The chart of accounts is used to post every journal entry.
Journal entries and general ledger
Source documents are receipts, invoices and other documents that record business activity, and this data is used to post accounting transactions. Transactions are posted using journal entries, which post activity to accounts.
A company’s general ledger is a list of every transaction posted to the accounting records during a specific period of time. General ledger lists every account name and number in the chart of accounts, along with each debit and credit entry for a particular account.
General ledger is used to create the trial balance.
Trial balance and adjusting entries
Once all of the transactions are posted, the accounting department generates a trial balance, which is a listing of each account and the account balance. A trial balance may require adjustments and corrections.
An adjusting entry is an accounting transaction that is required to comply with the accrual basis method of accounting. Generally Accepted Accounting Principles (GAAP) requires the accrual basis of accounting, so that the financial statements are clearly stated.
Once the adjusting entries are posted, an updated trial balance is used to produce the financial statements. At the end of each month and year, the books are closed and the process starts over.
The business owner, a bookkeeper or an accountant must perform each of the steps in the accounting cycle.
The division of accounting responsibility can differ, based on the size of your business. What’s important is to understand the big picture, and to get each accounting task completed every month.
A good bookkeeper may have a business degree. Other bookkeepers have years of experience, and work effectively without a degree in business.
Bookkeeping services include:
- Financial transactions: Reviewing source documents and posting journal entries into your accounting software.
- Reconciliations: Reconciling bank accounts and reviewing general ledger to ensure that financial information is posted to the correct accounts.
- Data entry: Professional bookkeepers post credit card activity and handle the recordkeeping needed to process payroll each month. Bookkeepers make changes to employee tax withholdings and wage rates, so that net pay is calculated correctly.
- Monitoring: A good bookkeeper monitors accounts payable to ensure that vendors are paid on time. Bookkeepers update the small business owner on accounts receivable, and may help the owner with receivable collections to improve cash flow.
Managing a small business is challenging, but a full-time bookkeeper can free up the owner’s time and add tremendous value. The bookkeeper is a second set of eyes to monitor business finances.
If you’re handling the accounting tasks on your own, consider starting with a part-time bookkeeper.
You may hire someone with an accounting degree to provide accounting services, or bring in a certified public accountant (CPA). CPAs have accounting degrees and must pass the CPA exam. The CPA credential is highly valued in the accounting profession.
Accountants supervise the bookkeeper, review all of the accounting transactions and manage the recordkeeping process. Their work also includes:
- Financial statements: Making adjustments to the trial balance and generating the income statement, balance sheet and statement of cash flows.
- Tax returns: Accountants produce the financial reports required to generate tax returns. Your accountant may produce the tax filings and send them to the IRS, or work with a CPA firm that provides the service during tax season.
Most importantly, your accountant should be a valued advisor who can help you make important financial decisions. If you’re considering purchasing a piece of equipment, or taking out a line of credit, consult with your accountant.
Setting up for growth
Hiring a bookkeeper or accountant is the only way a business owner can manage growth.
Company growth requires more accounting transactions. You may start your small business by handling the accounting tasks yourself. As you grow, hand off the day-to-day transaction input to a bookkeeper.
Eventually, your business will require the expertise of an accountant. Find professionals who can keep your accounting system on track, free up your time and help you make better decisions.
Put together an accounting team that can grow with your business, and you’ll gain peace of mind.
This article was produced by the Quickbooks Resource Center and syndicated by MediaFeed.org.
Featured Image Credit: rez-art / iStock.