As a small business owner, you will need your financial data to be very accurate and also current as this will help your business to maintain healthy cash flow. However, as your business starts to grow and expand, the act of financial management becomes more cumbersome because now more money is flowing in and out of the business. At this point, you will not be able to manage your finances on your own because it will be time-consuming and you will not have that time.
When your business gets to this level, you will need help but most business owners are confused on what kind of help to get. Should they hire a bookkeeper or an accountant? Sometimes both works are used interchangeably but are they really the same thing? The answer is No.
So how does a bookkeeper differ from an accountant?
Bookkeeping vs. accounting
Bookkeeping is defined as the process of recording the day-to-day transactions of a business and it is the bases of building a financially successful business. So what are the things that are done in bookkeeping?
Bookkeeping is made up of activities like:
- Recording Financial transactions
- Posting debits and credits
- Producing invoices
- Making sure that the subsidiaries, general ledgers and historical accounts are balanced.
- Managing payroll.
Managing the general ledger is the key component in bookkeeping. This general ledger is the document where the bookkeeper records amounts of sales and expenses that were made. The process of doing this is called posting. A ledger can be created with a software, or a computer excel spreadsheet or simply using a piece of paper depending on the choice of the business.
These are the functions of the bookkeeper and the thing is, the work gets more complex as the business increases in size. This is because all the transactions must be recorded and if the amount of sales and purchases keep increasing, the work gets more tasking.
The accounting process is a high-level process that uses the information compiled by a bookkeeper or a business owner to general financial models that will help the business move forward.
The process of accounting is different from bookkeeping because accounting is subjective while bookkeeping is transactional. The accounting process is comprised of:
- Recording expenses that have been made but not yet recorded in the bookkeeping process.
- Preparing the financial statements of the business.
- Running analysis of operation costs.
- Completing income tax returns.
- Helping the business owner to understand the impact of his financial decisions.
The accounting process provides reports that merge the important financial indicators of a business. The result is that the business owner better understands the state of his business and is aware of how profitable the business is.
The accounting process takes the information in the ledger and breaks it down in such a way that it reveals the bigger picture of the business. This helps the owner to plan and set down strategies for growth and business advancement.
Basically the difference is that while the bookkeeper is tasked with recording that transactions and keeping the business financially organized, the accountant helps to make the sense of the financial records. The accountant is more like a consultant.
So now that you know the difference, you need to ask yourself: What do I need for my business? Is it an accountant or a bookkeeper?
If you are still confused, you can simply employ the services of an accounting firm in Malaysia, who will help you manage your finances and you will not have to worry about a thing. Feel free to get in touch with us.
Your finances is the most important part of your business. Take it seriously.