Many individuals dream of starting their own business. Typically, it involves engaging in a passion area and, if successful, making a significant profit. However, launching a small business requires thorough bookkeeping and accounting. And, if a firm hires a team of employees, the owner must secure payroll.
Luckily, business owners can ask for the help of professional bookkeepers and payroll experts. But what is the difference between bookkeeping and payroll services? Readers will find out the answer to this question in our article.
What is bookkeeping?
In a sense, bookkeeping is the regular recording and maintenance of a business’s financial transactions. It involves the preparation of financial statements such as income statements, expense reports, and cash flow statements. Professional bookkeeping guarantees individual financial records are correct, up-to-date, and complete. Accuracy is critical, and most bookkeepers prefer using accounting software to enhance the process.
Bookkeeping prepares the data for accountants when they form financial reports and statements and prepare the basis for consultations and the tax season. It is a unique procedure that takes place within the context of accounting.
Every financial operation, whether buying or selling, must be documented. For bookkeeping, there are predefined procedures called ‘quality controls,’ which assist in timely and mistakes-free records.
Professional bookkeepers must possess the following essential skills:
- Understanding of the basics of accounting (some bookkeepers pass accounting courses or earn bookkeeper’s certificates).
- Excellent precision and accuracy.
- Detail-oriented approach.
- Administrative proficiency.
- Understanding of accounting applications like Xero, QuickBooks, FreshBooks, and others.
A bookkeeper’s responsibilities often involve data entry, maintaining accounts payable and receivable, etc.
Bookkeeper duties
Let’s provide you with the list of standard bookkeeper’s duties:
- Processing invoices and payment receipts.
- Preparing income statements.
- Ensuring financial records are accurate.
- Tracking the company’s everyday transactions.
- Keeping bookkeeping on track.
Typically, bookkeepers may be exempt from generating reports if the company employs an accountant. However, responsibilities depend on the company hiring an employee.
What is payroll?
A company’s success is impossible without employees. Payroll is the process of paying workers for their work for a specified time or on a specific day. Big companies have accounting or human resources departments in charge of payroll. Most businesses prefer outsourcing payroll to specialists or accounting firms. These experts handle payroll management, employee benefits and compensations (in case of injuries or accidents), and accounting functions, including tax preparations.
The payroll expert’s duties
Payroll is a significant expenditure for most businesses, and it is tax-deductible. Thus, companies should deduct payroll from their gross incomes, decreasing their tax burden. It’s one task, but there are more.
These are a few typical tasks of payroll accountants:
- Adhering to regulatory payroll standards and procedures.
- Ensuring every payroll transaction is on schedule.
- Gathering and recording data to maintain payroll.
- Calculating wages, making deductions for taxes and benefits, and issuing payments.
It also ensures that businesses comply with relevant labor laws and regulations.
Explaining the difference between bookkeeping and payroll services
Even though bookkeepers may take care of payroll-related duties, these two jobs are different. Now that we’ve gone through each position in detail, let’s learn about the significant differences. Payroll and bookkeeping are distinct since they perform separate functions within a business:
- Payroll is the process of paying employees for their work.
- Bookkeeping is the time-consuming process of recording all financial transactions within a business.
You may have heard that accounting and payroll are two terms that can be used interchangeably. However, that’s also a false statement. Firms may hire accountants who prepare their taxes, generate financial statements and reports, etc. But a firm may also hire a payroll accountant to manage salaries and ensure they are paid on-time, while taking care of accounting on their own.
Final thoughts
Understanding all these terms is critical. Bookkeeping and payroll services are two different tasks that are both essential to run a business successfully. Bookkeeping helps companies understand their financial standing and ensure accurate taxes, while payroll ensures that employees are paid correctly and on time.
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