By Analytix Editorial Team
Most small businesses follow a budget. This budget decides business investments, purchases, hiring of resources, expenses on infrastructure, etc.
However, if you are a business owner yourself, you know that it is some of the basic and back-end functions that often need the most investment. Bookkeeping and accounting are two such essential functions that need time and attention from the business owner.
What is bookkeeping?
The function of recording transactions that include the exchange of money, such as purchases and sales, is termed as bookkeeping. Bookkeeping is critical to any business because every transaction, whether purchase or sale, needs recording not just for the purpose of keeping track, but also from a business perspective to ensure that budget considerations are being met and expenses are utilized as intended.
There are two methods of bookkeeping: single-entry and double-entry. Usually, the single-entry system of bookkeeping involves summarizing cash receipts and tracking cash payouts by the business. In the double-entry system, if there is a record of earnings to be made, there will be two entries made: one which records outgoing cash or ‘debit’ from an account termed Cash, and another for recording the revenue earned, termed Revenue.
But regardless of which method is followed, bookkeeping is a process that needs diligence and must be carried out every day without fail, recording receipts and invoices. This is why it is best performed by a dedicated resource who is responsible for ensuring that all transactions, including credits, are duly recorded and tracked. Bookkeeping is said to be accurate when the entries are accurate and the sum of debits for all accounts matches the sum of credits for all the accounts taken into consideration.
What is accounting?
Accounting takes off from where bookkeeping ends. The transactions recorded by a bookkeeper are stored in books usually termed ledgers. There may be different types of ledgers, including sales ledger, supplies ledger, general ledger, etc. An accountant takes the information from these books and uses it to grade the economic activity of the business. Eventually, this information reveals the financial health of the business and how well it is performing, etc. Accounting data is critical to investors in the business, creditors, and regulators.
Speaking in practical terms, what do bookkeeping and accounting translate into?
In the course of a normal day, a business will exchange invoices, or credit notes for purchases made. Checks are issued, or expenses made. However, checks may be given a future date, which means the actual transfer of funds will take place on that given date or later, when the check is presented. Purchase receipts are received and some of them will be paid at a later date. All of these transactions are critical and generally get categorized as Accounts Receivable and Accounts Payable, referring to payouts or income.
The job of the accountant includes ensuring that the finances of the business are reflected accurately to provide the management and investors with the correct picture of the business’s health. This information is then utilized when making critical business decisions, including those of investing, selling, etc.
Both are critical to a business
If the bookkeeping function falters:
When the accounting function falters:
For a startup that intends to grow into a business, both these functions are indispensable. However, these are best carried out by experts to avoid the far-reaching consequences of errors.
The team of professionals at Analytix Solutions has expertise to help strategically guide small business in managing financial functions, including accounting and bookkeeping. We are currently offering a free analysis of your business processes and accounting system. If you would like to learn more on how Analytix Solutions can help your business forward, please call us today at 781.503.9002 or email us firstname.lastname@example.org.