According to the U.S. Chamber of Commerce, there are over 33 million small businesses in the United States. To thrive in today’s competitive markets, accurate bookkeeping is essential for your business.
Bookkeeping vs. Accounting
It’s crucial to understand the distinction between bookkeeping and accounting. Bookkeeping involves systematically storing financial documents like receipts, purchase orders, and invoices, and recording daily financial transactions such as purchases and sales. Bookkeepers use accounting software like QuickBooks®, NetSuite®, or Xero™ to record journal entries (debits and credits) for each transaction. They also handle sending invoices, processing payments and payroll, conducting banking activities, and reconciling accounts.
Accounting, on the other hand, involves classifying, interpreting, and communicating financial transactions. Accountants use the records maintained by bookkeepers to generate financial statements like balance sheets, income statements, and statements of cash flow. These reports provide insights that help management and external stakeholders evaluate financial performance.
Two Accounting Methods
Business owners must choose a method for recording and classifying financial transactions. The two main options for small and midsize businesses are:
- Cash Accounting: Under this method, revenue is recorded when cash is received, and expenses are recorded when paid.
- Accrual Accounting: Prescribed under U.S. Generally Accepted Accounting Principles, this method records revenue when earned and expenses when incurred, regardless of when cash changes hands. It includes items like accounts receivable and accounts payable.
Choosing one method and sticking with it is important for consistent financial reporting. Some businesses start with cash accounting and switch to accrual accounting as they grow.
Getting Professional Help
Navigating accounting rules, tax laws, and payroll regulations can be overwhelming for many small businesses. Fortunately, you don’t have to do it alone. We can help you set up and maintain a reliable system for accurate and timely financial reporting. Contact us for more information.
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