It’s no secret that entrepreneurs wear many hats. It’s a necessary function to help keep costs down while also growing a small business in the early stages of inception.
One function business owners shouldn’t attempt to tackle on their own is their accounting. Managing your own books might be something that can be tackled while the business is still small; however, that will take time away from another task where your time and energy should be focused. So, should you hire a bookkeeper or an accountant? Although they are very similar, they are also different.
Bookkeepers and accountants both work with the financial numbers for a company or organization, but the depths of their involvement is quite different.
Bookkeepers record the day-to-day financial transactions of a business. This includes documenting everything from sales and bills to capital received. Some smaller businesses still record transactions manually in books (pen to paper), but it’s more common to see organizations using electronic, automated recording. Accountants create the accounting systems that bookkeepers use for recording data.
In a nut shell, bookkeepers handle the recording of financial data, which is the first step in the accounting process. It doesn’t require a degree, but will require training to make sure information is entered correctly.
Accounting, as defined by Investopedia, is the systematic and comprehensive recording of financial transactions pertaining to a business, and also refers to the process of summarizing, analyzing, and reporting these transactions to oversight agencies and tax collection entities. Accountants follow an accounting process, which includes the following steps:
- 1. Identify each transaction (loans, invoices, bills, etc.)
- 2. Record each transaction as a journal entry. This includes the date of the transaction, the affected accounts and the amount.
- 3. Post entries to account ledgers.
- 4. End of month trial balance. Compiling all debits and credits, ensuring both columns equal the same amount.
- 5. Record non-traditional entries, such as the depreciation of equipment.
- 6. Balance out the books. In accounting, debits are entered on the left side of the balance sheet and credits are entered on the right side. These two columns should balance out if the transactions have been recorded properly.
- 7. Create financial statements, if necessary.
- 8. Close the books at the end of every month. This will help for quarterly and annual evaluations. Have you ever come across a news article about the earnings or losses of a major corporation? By law, the Securities and Exchange Commission (SEC) requires all public companies to file financial reports both quarterly and annually.
Professional accountants typically need a bachelor’s degree or higher, and most can’t land a job without passing the Certified Public Accountant exam (CPA). In short, the business accountant is in charge of recording, interpreting, classifying, analyzing, reporting, and summarizing all financial data.
Every business is unique, so the size and stage of your business will dictate the type of financial help you will need. If you’re still pinching pennies and your business is new or very small, start off with a bookkeeper. If you are quite large and don’t yet have an accountant, it would be wise to hire one ASAP (they don’t have to be local, either).