Bookkeeping vs. accounting: Are they one in the same? 

When it comes to small business accounting, it’s a common misconception that bookkeeping and accounting are interchangeable, but in reality, they serve quite different purposes. Bookkeeping is solely responsible for the recording of financial transactions, while accounting involves interpreting and analyzing that data. Deciding whether you need a bookkeeper or an accountant depends on a few factors. Here are some things to consider:

Typically, bookkeepers record financial transactions on a daily basis and will log everything from bill payments to reimbursement receipts. Ultimately, their goal is to keep your books up-to-date and dutifully organized. 

Conversely, accountants handle bookkeeping and then some. They will complete the same tasks as a bookkeeper, and will additionally advise on best practices for setting up your books, generating budgets, creating reports, and more — all with the end goal of helping you make better, more informed business decisions.

The growth stage and needs of your small business will determine whether you need a bookkeeper vs. an accountant. Early on, you may not need or have the budget for all of the services that an accountant would provide. Therefore, a bookkeeper would suffice to start. As your business expands and financial needs change, however, you may need a more comprehensive approach to managing your books, which is where an accountant comes into play. 

That’s another benefit of outsourcing this function (rather than hiring a full-time staff member). With Acuity, you only pay for the services and the hours that you need. Then, as your business grows, we can grow with you and provide more advanced services.

A CPA, or certified public accountant, is responsible for all accounting functions, from managing and auditing your financial records to representing you or your business in front of tax authorities. CPAs are essentially accountants with more experience, education, and expertise. They must be certified through the CPA Exam, and they must meet continuing education requirements to maintain their licenses.

The role of a CFO is more leadership-oriented, as he or she will focus on managing and implementing a longer-term financial strategy for your business. CFOs will build forecasts and manage your financial plans; they will maximize profitability while also maintaining the relationships with your lenders, investors, and shareholders.

While these roles are important for business growth, many small businesses can’t afford or don’t need a full-time CPA or CFO. That’s where we come in. Talk to us to learn more about what a fractional role would look like.

If you’re new to the world of small business accounting, getting your finances in order can feel a little overwhelming. Once you learn a few industry terms and the tricks of the trade, you’ll be well on your way to a brighter financial future.

1. Asset – Anything the company owns that has monetary value. These are listed in order of liquidity, from cash (the most liquid) to land (least liquid).
2. Balance Sheet – A financial statement that reports on all of a company’s assets, liabilities, and equity. 
3. Cash Flow – The inflow and outflow of cash in a business. 
4. Credit – An increase in a liability or equity account, or a decrease in an asset or expense account.
5. Debit – An increase in an asset or expense account, or a decrease in a liability or equity account.
6. Depreciation – The loss of value in an asset over time. 
7. Equity – The value left over after liabilities have been removed; the portion of the company that is owned by the investors and owners.
8. Income Statement – A financial statement that shows the revenues, expenses, and profits over a given time period. Also referred to as a Profit and Loss or P&L.
9. Inventory – The term used to classify the assets that a company has purchased to sell to its customers that remain unsold.
10. Liability – All debts that a company has yet to pay, including accounts payable, payroll, and loans.

If you’re using your personal bank account for business transactions, stop. This is one of the biggest mistakes we see and ways that business owners can get themselves into a real mess. It’s imperative to open a dedicated business-only account. Doing so will not only help you stay organized and track your expenses, but will protect you legally while safeguarding your identity.

Play it safe and hold onto your records for longer than you think necessary — up to seven years, in fact. While the IRS requires companies to keep business tax returns for a minimum of three years, the agency can still come after your business six and even seven years later.

Forbes expects that by 2020, accounting tasks — in addition to tax, payroll, audits, and banking — will be fully automated using A.I.-based technologies. They predict that these technologies will be the most significant disruption in the accounting industry in 500 years, bringing both huge opportunities and serious challenges.

From software to accounting apps that help you keep track of your expenses, familiarizing yourself with these six accounting tools can help you get organized.

Did you know that 27 percent of small business owners spend more than five hours per month on payroll? Use these payroll tips to stay on top of payments while saving time.