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Bookkeeping

Bookkeeping is the process of recording all financial transactions made by a business. Bookkeepers are responsible for recording, classifying and organizing every financial transaction that is made through the course of business operations. Bookkeeping differs from accounting. The accounting process uses the books kept by the bookkeeper to prepare the end of the year accounting statements and accounts.

Major Takeaways
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  • Two common bookkeeping methods are:

    • Cash Accounting - a bookkeeping method where revenues and expenses are recorded when received or paid, and not when they were incurred.

    • Accrual Accounting – a financial accounting method that allows a company to record revenue before receiving payment for goods or services sold or expenses.

  • Effective bookkeeping requires an understanding of the firm's basic accounts. These accounts and their sub-accounts make up the company's chart of accounts. 

  • A business's six basic accounts are: Assets, Liabilities, Equity, Revenue, Expenses, and Costs. 

Accounting Software

 

Tech-savvy business owners or those familiar with accounting principles may be drawn to accounting software. From a time-management standpoint, digital bookkeeping is a vast improvement over manual calculation.

 

These applications automatically crunch numbers, perform data entry, track performance metrics, and produce business reports. Once your data is entered into an application correctly, the accuracy of the software’s calculations is virtually guaranteed; this can be a comfort in the event of IRS scrutiny.

 

More advanced versions integrate with other office management programs, display data trends, pay accounts receivables, remit invoices, or ensure that you are meeting tax requirements.

SOFTWARE PROS
 

  • Data entry saves redundancy  

  • Pre-calculated sales taxes  

  • Cloud-based storage eliminates the need for costly desktop technology in the office  

  • Generally user-friendly

 SOFTWARE CONS
 

  • Security is riskier within cloud-based services  

  • Often packaged as subscription services that charge for annual updates  

  • Dependent on tech support from outside source  

  • Costs can be high, especially for a desktop-based installation

Some software programs are targeted toward small business accounting professionals or bookkeepers; others are designed for business owners who are unfamiliar with accounting but willing to learn.

 

For companies with little or no inventory and few employees, minimalist accounting software is available for free or at low cost. These basic solutions are affordable and easy to implement, though they do leave you at risk of spending considerably more for an IRS audit triggered by inaccurate reporting.  

 

Some currently popular accounting software programs include: 

  • QuickBooks or QuickBooks Online 

  • PeachTree Accounting

  • Sage Live 

  • NetSuite

  • Zoho Books

Hiring an Accountant

 

In some cases, small business owners may be more comfortable hiring a sole practitioner or accounting services firm, perhaps one that specializes in small businesses. Other businesses may hire temporary accounting staff at certain times during the year or hire part-time bookkeeping staff with advanced training. 

 

In each of these cases, business owners transfer the company’s financial management to another individual. For a business owner who lacks accounting skills or detests crunching numbers, outsourcing the company’s financials can be an attractive choice.  

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Many business owners find an accountant’s expertise and tax knowledge to be the biggest draw towards outsourcing. A qualified accountant can assist in numerous ways outside of managing day-to-day finances. For example:   

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  • Advising on how best to structure a company before it is formed  

  • Consulting on the financial details of your business plan  

  • Identifying potential cost savings in operations  

  • Managing payroll  

  • Developing a financial safety net in case of catastrophic events or struggling growth  

  • Liaising with the IRS in the event of an audit 

ACCOUNTANT PROS
 

  • CPAs are trustworthy  

  • Tax law knowledge is crucial  

  • IRS audit assistance  

  • Development of business growth strategy  

 ACCOUNTANT CONS
 

  • Hourly rates are costly  

  • Most of your company’s financial knowledge lies with one person, which is risky

  • Lack of control over daily transactions  

  • Outside of the office  

Choosing an accounting services provider can be just as daunting as keeping your own books.

 

Big accounting firms are easily accessible and well-staffed with qualified CPAs. However, their size leads some small business owners to prefer a smaller firm that will not lose them among their top-dollar clients or pass them off to junior staff.

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Massachusetts Society of CPAs provides a searchable database of certified public accountants ranging in  all different industries and services.

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