While bookkeeping and accounting are closely linked, each role is not identical and there are several reasons the two tasks are essential to the proper financial functioning of a business owners firm. They are both critical to the success of a company and work cohesively to comprise an organization’s financial operations. One could not exist without the other and both bookkeeping and accounting should be properly managed to maximise profit and growth potential. In this article, we will help you better understand the process of bookkeeping as well as how it differs from accounting so that you can consider ways to incorporate proper bookkeeping practices into your organisation.
The main purpose of bookkeeping is to track and record every financial transaction made by a business from the date it opens to the day it closes. Each transaction is noted by a bookkeeper based on supplementary documentation and is to be used by accountants in subsequent phases of a business’s financial recording and allocating procedures. Receipts, invoices, purchase orders, and other relevant documentation is tracked by bookkeepers and tabulated to define the records of when transactions in the business have taken place. Bookkeepers complete records using single-entry or double-entry bookkeeping and work alongside accountants to balance books.
There are several ways companies can implement the process of bookkeeping. This can be done through dedicated employees skilled in the profession who note transactions down by hand in a financial journal, input the data into spreadsheet software, or tabulate information through specialised bookkeeping programs. Each method offers several benefits and limitations, however, companies can improve the efficiency of bookkeeping by outsourcing the task to professional organisations equipped with the tools to speed up the process of this role. Companies like MBS facilitate the fast turnaround of bookkeeping results and offer additional services to assist this area of business operation, helping companies allocate resources elsewhere to reduce costs and save time.
While bookkeeping and accounting work hand in hand, they are not the same thing. Bookkeeping is an essential precursor function to the accounting function. The bookkeeper’s responsibility is capturing data relevant to a business’s financial operations, such as noting each transaction in a financial journal of sorts according to its debit or credit classification. These records align with a firm’s chart of accounts so that consistent approaches are followed when the data moves from the bookkeeper’s hands to the accountants.
Capturing the data is, first and foremost, the most critical step as an accountant would not be able to do their job without transactions to make assessments from. At specific time-periods stipulated by the company, such as quarterly report periods, accountants are tasked with taking the information recorded by bookkeepers and analyzing, reviewing, and interpreting it to create adequate financial statements and accounts for the firm. In this way, the financial process is two-fold, with bookkeepers responsible for the data capture of transactions and accountants responsible for the analysis of captured data. Each job is equally important as one would not exist without the other.
The importance of bookkeeping cannot be argued as it is a critical step in ensuring businesses have clear records of their financial transactions. Bookkeeping’s crucial role can be attributed to several benefits for the business and business owners outlined below:
Following the information outlined in this article, one can see the importance of the bookkeeping process and plan to implement better bookkeeping practices through outsourcing roles and supporting the financial record tracking, allowing business owners to allocate resources elsewhere and save money in the process. Understanding the differences between bookkeeping and accounting is the first step to harnessing the power of both.