“Bookkeeping and accounting–are they not one in the same?”

Bookkeeping is not the same as accounting. It is simply a component of accounting!

Bookkeeping is, with little doubt, the simplest and yet most monotonous component of accounting. Think of bookkeeping as transaction based record keeping. Bookkeepers are charged with maintaining a chart of accounts and an accurate general ledger based on the transactions that occur. Furthermore, individual bookkeepers may not do all facets of bookkeeping. Like other job functions, bookkeepers may be relegated to specific duties, such as payroll, accounts payable, billing, and accounts receivable. Of course, you also have full-charge bookkeepers that cover the full gamut of what would fall under the scope of bookkeeping, including:

• Recording transactions in general ledger
• Reconciling transaction activity to source records
• Verifying general ledger is balanced by preparing trial balance
• Maintaining records and filing of financial related documents
• Preparation of and summarizing financial and other information into useful reports

Accounting, in contrast, while certainly encompassing bookkeeping, is higher level and focuses more on analyzing the results and effects of the transactions. Bookkeeping serves as the foundation of accounting, but it is NOT accounting in itself. Accountants analyze transaction activity and reports, including financial statements, for a variety of purposes. They seek to understand where you have been and where you currently stand, but also where you are most likely headed. Bookkeeping is a crucial part of accounting, but it is only a sliver of the accounting pie.

“I cannot afford a bookkeeper.”

Do not be too quick to think such a thought. While it is true that the United States Department of Labor’s Bureau of Labor Statistics places a bookkeeper’s average salary at $38,390 or $18.46 per hour (2016 median pay), what you may not realize is that you do not necessarily need a full-time bookkeeper. Outsourcing bookkeeping to an independent firm may be a very viable and beneficial avenue. More importantly, such action frees up your own time to focus on what you do best.

Experience has shown me that, depending upon scope of services, full-scope independent bookkeeping and accounting generally costs in the range of 3-5% of gross revenue for small businesses. While this is not a rule set in stone, it is certainly the range I tend to see among numerous small businesses that utilize independent services. At the same time, I have witnessed accounting staff and departments at small businesses consume up to 30% of a company’s gross revenue. Certainly, the complexity of a business and accuracy of source records plays a large role in total costs. Regardless, it is possible for any small business to have access to top notch professionals without incurring anywhere near the same costs as if they had their own staff.

An inquiry has never hurt anyone. Contact Cornerstone CPA Solutions to find out if an independent business partner could be your ideal bookkeeper, especially when included as part of a full-scope contractual fee agreement.