Bookkeeping and accounting serve different purposes in business. Whether you hire a professional or do it yourself, you—as a business owner—are fully responsible for all reporting to the Canada Revenue Agency (CRA) and other governing bodies. You cannot afford to assume or be ignorant of any laws and regulations when it comes to the books. As owner or operator of your company, you are legally bound to the responsibilities related to business ownership.
What is the difference between accounting and bookkeeping?
- Responsible for preparing financial statements and yearly tax returns
- Prepares and audits reports based on the bookkeeping data
- Adjusts entries for interest, depreciation, bad debts, etc.
- Analyzes and interprets financial data
- Concerned about assets and liabilities, financial health
- Accountants need to meet professional standards and certifications
- Typically subjective
- Responsible for the reliability of the data used by accountants
- Records sales, purchases, settlements, profit etc.
- Data entry of detailed business records
- Does not need to interpret or analyze entries
- Concerned about day-to-day financial events
- Anyone can be a bookkeeper if they have the knowledge and experience; no certification is required
- Typically objective
The Role of Bookkeeping and Accounting in Small Business
Accountants prepare budgets and loan proposals, as well as working with the costs and prices of a company’s products or services. Accountants can also find trends as well as identify issues such as theft or bankruptcy.
Accountants also provide information and analysis to various groups. For example, management accounting keeps the managers of the company informed about revenues and costs, and financial accounting keeps the bank, vendors and stakeholders informed about the financial activity of company. The nature of the information for outsiders and insiders is different, which is why big companies need both of these branches.
Accountants are typically responsible for setting up a system for bookkeeping, regardless of who is involved or how the bookkeeping takes place. This means creating accounts, understanding and communicating obligations and timelines, and assigning authority. Assigning authority simply means deciding who can sign cheques, withdraw or deposit cash into the business bank account, or make purchases.
Bookkeepers sort, organize and keep track of all your financial paperwork, typically by inputting data into an accounting program like Sage 50 or QuickBooks. Bookkeepers also ensure that you save copies of all your receipts for expenses by cross referencing bank statements.
Furthermore, bookkeepers process monthly or regular reports which can include Profit & Loss Reports, Balance Sheets, and your GST (Goods & Services Tax) and your PST (Provincial Sales Tax) remittance in a timely manner. Bookkeepers are typically responsible for keeping accurate payroll records and ensuring monthly payroll reporting is completed on time. Primarily, bookkeepers make sure your day-to-day numbers are correct. This ensures you can confidently make business decisions with your data.
Your business doesn’t necessarily need to have separate positions officially, especially in the start-up phase, but both purposes of these roles should have a place in the financial management of your company starting with the first expense you incur. You might have a part-time bookkeeper who records data into online tools and software such as QuickBooks Online. Keep in mind that software has limitations. For example, an accountant can create reports according to the daily needs of the owner, while software is limited to its pre-programmed reports.
Bookkeeping and accounting take patience, organization and daily maintenance. As the business owner you already fill many roles. So, even if you have the skillset, contracting these services can be a strategic use of funds. Find a local third-party accountant who can help you set up your bookkeeping system, produce weekly or monthly statements and offer interpretation and advice. You can either pay for each service as the need arises, or keep the accountant on a retainer. Many companies offer “start-up packages” at a discounted rate for the first year of business.
Corporations have certain obligations that an accountant is best fit to complete. Particularly, auditors are professionals who check and attest to the accuracy, fairness and general acceptability of a corporation’s accounting records. A corporation typically appoints an auditor who is a designated Chartered Professional Accountant (CPA) to prepare the annual financial statements. Alternatively, you may appoint an accountant to prepare the financial statements without auditing services. For example, Federal Corporations may need to submit two annual corporate report filings and your third party accountant can complete this task.
Shareholders of a private corporation may choose not to appoint an auditor. All the shareholders must agree to this decision, every year. Private corporations must also prepare financial statements that are released to the shareholders or members. These statements are reviewed at the Annual General Meeting.
Bookkeeping and accounting are essential for the success of any business. Bookkeeping is important as it is the primary stage of keeping financial records. Accounting analyzes and forecasts the financial activity and health of the business based on data and records.