What Does a Bookkeeper Do? A Simple Explanation Bench Accounting

They may also create budgets, help business owners plan ahead, and provide specific tax advice. In general, accounting requires more logic and problem-solving skills than bookkeeping. It relies on bookkeeping to organize and ensure the accuracy of your financial records but then goes a step further https://www.scoopbyte.com/the-role-of-real-estate-bookkeeping-services-in-customers-finances/ to draw conclusions about your business finances. Your cash flow statement reconciles the income statement to the balance sheet and answers the question, “Where did the cash go? Only an accountant licensed to do so can prepare certified financial statements for lenders, buyers and investors.

By understanding your financial transactions, you can make better decisions about how to run your business. The first thing to do in bookkeeping is to collect all your financial documents, such as invoices, bills, receipts, bank statements, payroll records, and other documented transactions. One of the common misunderstandings among small business owners who need to be up to speed with financial management is thinking that bookkeeping and accounting are the same. Each bookkeeping transaction has two sides (remember, it’s called double-entry accounting). One side of the transaction is the debit side, and the other side is the credit side. Assets and expenses are increased by debits and reduced by credits.

What is a bookkeeper?

Assets are what the company owns such as its inventory and accounts receivables. Assets also include fixed assets which are generally the plant, equipment, and land. If you look you look at the format of a balance sheet, you will see the asset accounts listed in the order of their liquidity. Asset accounts start with the cash account since cash is perfectly liquid. After the cash account, there is the inventory, receivables, and fixed assets accounts.

• Accounting is the interpretation and presentation of that financial data, including aspects such as tax returns, auditing and analyzing performance.
• Outsourcing the work to a seasoned bookkeeper can allow you to focus on your business plan and growth.
• It only works if your company is relatively small with a low volume of transactions.
• Accountants review the financial information gathered by the bookkeeper and analyze this data to create financial reports to assess the business’s financial health.
• For example, QuickBooks is a low-cost bookkeeping and accounting software package that is widely used by small businesses in the U.S.

In this article, we will answer the above-listed questions to give you a broader understanding of bookkeeping. While an accountant can be a bookkeeper, a bookkeeper cannot be an accountant unless they have proper certification. Bookkeepers are expected to maintain a healthy day-to-day financial record for the business. The strength of an accountant is recognizing a problem, such as disappearing inventory or a customer who is consistently tardy on payments, before it affects the business. Accountants tend to have specialized knowledge that helps them look at the ‘big picture’ of your business finances and make recommendations. Amrita Jayakumar is a former special assignments writer for NerdWallet.

Business Line of Credit: Compare the Best Options

The chart of accounts lists every account the business needs and should have. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.