Keeping accurate financial records is very important to a small business’s success. These records allow small business owners to make plans and informed decisions about their businesses. While both bookkeepers and accountants share the same goal of helping small businesses with their financial functions, they are responsible for tasks in different stages of the accounting cycle.
The Accounting Cycle
The accounting cycle is a process that every financial transaction in a business goes through. When a financial transaction occurs, such as the purchase of supplies, it needs to be recorded in the journal, which is a list of transactions in chronological order. This transaction is then posted to a corresponding general ledger account.
At the end of an accounting period – which can be a month, a quarter, or a year – an unadjusted trial balance is generated based on the recorded transactions to identify any mathematical errors in the entries. Adjustments, including corrections and accrued items, are made to the journal entries, and an adjusted trial balance is prepared to make sure that all numbers add up.
Once the accounting data looks fine, the financial statements, including the balance sheet and the income statement, are prepared. The last step of the accounting cycle is the closing of the books, which means resetting the accounts to zero balances to prepare for the next accounting period.
The Roles of Bookkeepers
Bookkeepers are responsible for the operational aspect of a business’s finances and are involved in the early stages of the accounting cycle. They gather accounting data by recording the day-to-day financial transactions of a business in the journals and posting them to the company’s general ledger. Many bookkeepers use accounting software such as QuickBooks to help them with their tasks.
For example, when a small business receives payment from a customer, the cash or cheque goes to the bookkeeper, who records the transaction in the journal. When monthly bank statements are received, the bookkeeper reconciles the company’s accounting records against the bank accounts to make sure that they match.
Other responsibilities of bookkeepers include:
Generating invoices to customers
Collecting payments from customers
Issuing payments to suppliers
Keeping track of purchase orders
Calculating asset depreciation
The Roles of Accountants
Accountants are responsible for the analytical aspect of a business’s finances and are involved in the later stages of the accounting cycle. Their main role is to make sense of accounting data collected and produce financial reports using the information.
For example, they can use the accounting data to forecast the business’s cash flow, analyze its financial health, and identify business trends. If a business experiences high revenue but low profit, an accountant can look at the accounting data and point out costs that can be cut to increase profit.
In addition, accountants offer small businesses tax-related advice, such as tax credits and deductions available, and they make sure that these businesses comply with all the tax regulations. At tax time, accountants also file taxes for the small businesses.