Part 1: What Is the Difference Between Bookkeeping and Accounting?
Many business owners don’t know the difference between a bookkeeper’s job and an accountant’s job. Is there a difference? And if so, what are the differences?
We hear two opposite viewpoints from many business owners, especially new ones:
- They do the same thing.
- They have nothing to do with one another.
Both of these views are incorrect. Let’s take a look at the responsibilities of both your bookkeeper and your accountant, where they are difference, and where they are linked.
Your Bookkeeper’s Job
Almost every day you’ll either be making money or spending it, or both. It is your bookkeeper’s job to keep track of that financial activity. Each and every transaction has to be recorded.
Recording transactions is not as simple as might seem. A watchful business owner wants to know where his or her money is coming from, and where it is spent. Therefore, each transaction must be scrutinized and hence categorized.
For example, was that sale over-the-counter or on-line? How much money did you spend on cost of goods versus advertising. And speaking of advertising, how much was spent on print versus on-line versus radio?
It’s very similar to a home budget, isn’t it? What did you and the family spend on food, and clothing, and travel, and so on? That’s important information to know.
You need accurate and categorized numbers to fully understand your business’s Financial Story. This is crucial information when making big business decisions.
Next, the bookkeeper has to correctly record the GST/HST you both collected and paid out. Let’s say you collected $800 of GST/HST during a month, for instance. And you paid $625 as you bought inventory, paid rent, bought meals, advertised, etc. So the net amount you have to pay the CRA is the difference, or $175.
So, your bookkeeper has to keep track of two things here: The amount of GST you collected and the amount you paid. If you don’t keep track of the latter then you’ll be sending valuable cash to the CRA that you need and they don’t have to receive.
But that’s not all. There’s a third thing. Not all GST/HST paid out is equal.
Did you know that only one-half the GST/HST you pay out on meals and entertainment can be counted in that calculation? Your bookkeeper has to know this, and do the correct adjustments when doing the data entry.
Are you beginning to see that your bookkeeper isn’t merely doing data entry? She or he is also analyzing the information you supply to make sure it tells you about what’s going on in your business.
Next, in Part 2, we’ll get a glimpse into the job of your accountant.
