You may hear three terms quite frequently in the business field – accounting, bookkeeping, and payroll processing. People use these terms interchangeably. Though they are related to each other, there are several significant differences between them. As a business person, you must learn these differences as this knowledge will help you in different ways. Once you know the similarities and dissimilarities, it will be easier to hire the correct person to handle your business finances. And it will, therefore, save a lot of money for you. In this write-up, we discuss the basic differences between accounting and payroll and explain bookkeeping basics.
What is Accounting?
By definition, accounting refers to maintaining financial records and subsequent matters, including detailed analysis and factual verification of financial transactions and final reporting of the results. Here we discuss four main aspects of business accounting.
Presenting Final Reports
One of the most significant aspects of accounting is presenting the financial information in the format of general-purpose financial statements. Generally, the reports are presented in an income statement or a balance sheet.
In some cases, these reports can also be presented to someone outside the company. In those cases, the reports must be prepared following specific accounting regulations and financial reporting standards.
As the name suggests, this particular accounting aspect directly refers to the management of finances for a business. Here we give some short descriptions of several financial accounting terms that may help you understand what it actually is.
- Cash flow: It refers to the flow of incoming and outgoing cash in the business.
- Accounts payable: By the term ‘accounts payable’, we refer to the amount of money that a company has to pay its creditors.
- Accounts receivable: By the term ‘accounts receivable,’ we mean the amount of money that a company receives from its clients.
- Balance sheet: Financial statement about the business health.
- Liabilities: These are obligations of a business, including accounts payable, salaries payable, and interest payable.
- Assets: Assets are something that the business owns. These include inventory, equipment, investments, vehicles, and buildings.
In addition, other financial accounting matters are general ledger, owner’s equity, net income, etc. Financial accounting is highly crucial for a business to succeed. Without proper financial reporting, the business administration will never know whether the business’s financial health is good or not.
Management accounting is mainly performed for internal use. Internal accounting analyses include planning budget, setting operations standards, quotes, cost of goods sold, etc.
Paying taxes and filing for tax returns within time is necessary for any business. There are mainly four types of small business structures in Australia, and each type has specific government rules to comply with. You may consult a certified tax accountant for timely tax filing.
What is Payroll Processing?
You can find agencies offering payroll services Perth or anywhere in Australia. But before you contact any of them, you should know what payroll processing actually is.
In short, the fundamental meaning of payroll is the list of employees working in a company. But, payroll processing is something more than that. It commonly refers to the following matters.
- The systematic procedure of making calculations and distribution of paychecks to the employees on the day of payment.
- Preparation of financial records of the workers, which include wages, salaries, bonuses, deductions, withheld taxes, etc.
- The total amount of money paid by a company to its employees.
- The particular department of the company, which calculates the paychecks for the employees.
For a smooth running of payroll, you will require some precise information from the company employees. This information includes a correctly completed W-4 form, salary or wedges, time off, fringe benefits, and overtime benefits. There is another matter you should keep your focus on. If they get hourly payment, you should keep track of the total hours they have worked.
For your company, you may run your payroll in the three most typical ways. And these are outsourcing payroll, using payroll software, or doing payroll by hand. Here are brief descriptions of the three ways.
3 Ways of Payroll Processing for Your Company
- Outsourcing payroll: You can take help from a payroll service company in your area, which has been serving its clients for a long period. It can help you save time as the recruited accountant will take care of the entire process.
- Payroll software: Using payroll software will automate the whole process, and the calculations of taxes and wages will be much easier.
- Manual payroll processing: Very naturally, doing the job manually will consume more time. Not only that, but the accountant should also have adequate knowledge about the basics of payroll. Generally, we call such a person a bookkeeper.
In the next section, we will discuss what the job of a bookkeeper is.
What Is Bookkeeping?
By definition, bookkeeping is recording, maintaining, and retrieving financial transactions for a company, non-profit organization, or individual. The financial transactions included in the bookkeeping are as follows.
- Payment of suppliers
- Making bills for provided services or sold goods
- Recording the invoices
- Getting receipts from the customers
- Helping in payroll processing
- Financial reporting
- Recording decline in finances
- Tracking the accounts receivable
Nowadays, bookkeeping is typically done using computer software like Xero or QuickBooks. For your business, you may find any Xero bookkeeper Perth. Like accounting or payroll software, bookkeeping software has also made the job of a professional smoother and more manageable as it can process the business accounts faster, enhance the reporting accuracy, and back up data more efficiently.
There is a fundamental difference between an accountant and a bookkeeper. A bookkeeper’s job is to record the daily financial transactions of a company. In contrast, an accountant has to deal with all the aspects of the accounting process.
Accounting, payroll processing, and bookkeeping together constitute the financial cycle of a business. What you should note here is that they make their contributions in different phases of the process.