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Discovering the difference between bookkeeping and accounting

buisnessmeeting26238539.jpgMost small businesses assume that bookkeeping and accounting are the same thing. While they function closely and both deal with the business finances, they are two completely different entities. Much like sales and marketing, you need to take heed when you are dealing with the two in order to make sure your business books will come out correctly. This article will teach you about the basics of bookkeeping and accounting and it will help you to understand how the two work.

Understanding accounting
We will start by explaining what accounting really is and what it's purpose is. Accounting is usually refereed to as a complete department. You may have several accountants that work for your company and they will manage the books of the company to ensure that all of the financial transactions are properly taken care of. The accounting department will manage your incoming and outgoing bills and they are in charge of making sure that your business does not have cash flow problems. The accounting department usually manages the bookkeeping methods of the company if you operate a small business.

Most companies have at least one accountant, even if they outsource to this person only for audits and tax reasons. Your accountant will check on the money of the business and they will oversee the department to ensure that everything is accounted for and that you aren't losing money.

The accounting department will manage your payroll and make sure your employees are paid on time. They will also be in charge of handling the W-2s, pension, retirement, and other accounts for the business. The accounting department is responsible for audits and they will work directly with the IRS in the event that your company is audited.

Your accounting department is also in charge of tracking the business assets and handling the depreciation of your business assets.

Understanding bookkeeping

How does bookkeeping differ from accounting? As you can see accounting is in charge of the overall financial outlook for the company. Bookkeeping is a little different as it is only in charge of the day to day transactions. Bookkeeping is merely a method to record all of the transactions that will be sent to the accounting department. It doesn't deal with the analyzing of the books or understanding of taxes and other important things.

Think of bookkeeping as record keeping. When a person comes to your store and makes a purchase, you will record this transaction somewhere that is bookkeeping. All of the little things need to be recorded in order for accounting to work properly. Bookkeeping usually involves a software program that has some type of ledger. The lender helps track the money that is coming in and going out of the business.

Bookkeeping may be done on paper, but it is harder to track. Having a software program is your best option as it is easier to use and you can include more information. This information may be vital to the accounting department if there is a problem and they need to get in contact with some of your customers or even the vendors.

There are 2 methods of bookkeeping, single entry and double entry. Single entry was commonly used in the past and it is just an entry in the book as credit or debit. Double entry allows you to include this entry 2 times. You will include it as a single entry and then again on the main account pages where you can double check your numbers to make sure everything balances correctly.

Every business handles bookkeeping and accounting in their own way. Determine which is the best for your business and get ready to head toward a stronger financial future.

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