Taxes and Accounting

Bookkeeping and accounting: How they fit together

Learn the basics of accounting and bookkeeping, and how to work with others to keep your financials on track.

Published: August 01, 2016

When I quit my full-time job to join my husband in the family plumbing business, the plan was for him to turn wrenches and for me to manage the office duties. Unfortunately, things didn't go according to plan. We were soon running out of cash and gaining debt. We worked with an outside accountant, but we couldn't afford to outsource bookkeeping. My husband was taking charge of the actual plumbing work, so it was clear who would take over the books – me.

Keep tabs on your business's financials

Simply put, bookkeeping is the recording of your business's day-to-day expenses and earnings. Accounting, on the other hand, is a much broader term, which includes classifying, verifying, analyzing, and making recommendations according to the raw financial data that the bookkeeper reports.

After I began managing the bookkeeping for my company, it took me about a year to develop a firm understanding of the topic, and where we stood financially. I enlisted the help of my accountant during this time – together, we could see the problems and take action to fix them.

I learned to focus on what I call a known financial position (KFP). That means that you run your financial reports weekly, such as your balance sheet and income statement, to confirm that they are current and accurate.

It is wonderful if you are fortunate enough to be able to delegate. But it's important that you continue to oversee the bookkeeping and accounting tasks. In the event of an audit, you're the one who will be held accountable for mistakes – not your accounting team. It's your money and your responsibility, so it's important to protect your assets and resources on all fronts.

Complete a weekly bookkeeping checklist

You may subcontract with a bookkeeper who works at the office or off-site. Here's a list of data-entry tasks that you or your bookkeeper should complete on a weekly basis:

  • Enter sales

  • Apply customer payments

  • Make deposits

  • Enter vendor bills

  • Pay vendor bills

  • Enter credit card charges

  • Pay the credit card statement

  • Enter payroll

  • Reconcile bank account statements

How long does this take? It depends on the size of your business. For a small shop, it could take just a few hours a week to stay current. Whether you or a bookkeeper manages this process, write down how you complete these simple transactions so you can train a replacement or hold your employee accountable.

Regularly check in with your accountant

If you work with an accountant, he or she is responsible for tax compliance and strategy. A good accountant will also make sure you're on solid ground with your day-to-day bookkeeping. In addition, he or she may recommend a bookkeeper to you or offer some data-entry services.

Have your accountant check your bookkeeping work on a regular basis. Meet monthly at first, then quarterly, as you gain confidence and expand your understanding of your business's finances. Review the reports line by line, and ask questions.

Also have your accountant help with more complex transactions:

  • Enter beginning balances for a new business

  • Enter the purchase of a new vehicle or other assets

  • Record the sale of a vehicle or other asset

  • Calculate the depreciation and accumulated depreciation of assets

  • Submit or calculate sales tax

  • Check payroll records, garnishments, benefit deductions, etc.

  • Make corrections when you find a complicated mistake

  • Make month-end adjustments or entries

  • Make year-end adjustments to reflect your tax return information

Whether you're working with outside professionals or handling these responsibilities yourself, understanding the basics of bookkeeping and accounting is essential to the success of your small business.