Given the many problems small business owners encounter every day, recording and understanding the sales and expenses and other basic business data should be easy enough. But understanding the accounting needs of a business is not always so easy. Consider the difference between bookkeeping and accounting. Is there even a difference?
There is, and the difference is simple: bookkeepers record a company’s day-to-day transactions; accountants tell them how to do it, and then the accountants periodically make sense of all the information by turning it into useful reports .
“Bookkeeping is designed to generate data about the activities of an organization. Accounting is designed to turn data into information,” said D’Arcy Becker, CPA and Chair of the Department of Accounting and Finance at the University of Wisconsin.
So while a bookkeeper enters all of the sales for a store including sales commissions, as one example, an accountant compiles the individual sales into a total for some certain time period — perhaps daily, weekly or monthly — and adds all of the commissions together to get a total commissions expense, then provides a report on those two amounts.
John Tracy, author of "Accounting for Dummies," explains this further:
“Accountants look at the big picture. [They’re] the ones that step and back and say, we handle a lot of rebates, we handle a lot of coupons, how should we record these transactions? Do I record just the net amount of the sale or do I record the gross sale amount, too?” Once the accountant decides how to handle these transactions, the bookkeeper carries them out.
Of course the way things play out in the company is not always that simple. In large organizations there’s often a chain of command that starts with one or more bookkeepers or other data-entry personnel (perhaps including sales clerks) and ends with the chief financial officer, or the person who oversees the financial affairs of the entity. In between are chief accounting officers, often called controllers, accounting managers and sometimes, staff accountants.
Small businesses probably don’t have all of these positions, but their needs are similar. They might have a part-time or full-time bookkeeper (often the owner or a family member) but there might not be an accountant. Online tools and software such as Peach Tree and Quick Books are often used in place of accountants, with the bookkeeper recording data into the software. Becker points out a downside to relying on software, which is that an actual accountant can create reports according to the daily needs of the owner, while software is limited to its pre-programmed reports. Experts typically recommend finding a local accountant who works for many companies on a contract basis. That person can help you set your books up —manual or computerized — and produce weekly or monthly statements and offer interpretation and advice so that you know exactly how the business is doing.