14 Common Bookkeeping Questions – Part One

(This is part one of a two-part article – for part two, click here.)

Business owners typically go into business because they have an entrepreneurial mindset, want to solve a problem better than their competition, have a solution no one else does…the list goes on. Rarely does a business owner go into business because they are passionate about numbers (although Accountix is).  

We get a lot of accounting, bookkeeping, and financial questions from all different backgrounds, and it is absolutely okay that a business owner’s background is not numbers oriented (again, that’s why we are here to help).   So, to help all the non-number people out there, let’s go over some common accounting, bookkeeping, and financial questions that would benefit a business owner to understand.

Accounting is an essential part of running a business. It involves keeping track of financial transactions, recording them accurately, and ensuring that all financial records are up-to-date, with the added objective of interpreting the numbers to make informed decisions. Here are 14 common questions we get around bookkeeping/accounting and their answers:

What is the difference between bookkeeping and an accounting department?

Bookkeeping and accounting are two distinct but closely related functions in the financial management of a business. Bookkeeping involves the recording and tracking of a company’s financial transactions, while accounting involves the interpretation and analysis of that financial data to provide insights into the company’s financial performance and position.

The bookkeeping function is responsible for recording the daily financial transactions of the company, such as sales, purchases, receipts, and payments. At a minimum, bookkeeping should consist of reconciling bank accounts; however, assistance around invoicing and or management of accounts payable and accounts receivables can also be supported.  

The accounting department, on the other hand, is responsible for the overall financial management of the company. This includes preparing financial statements such as balance sheets, income statements, and cash flow statements, analyzing the financial data to provide insights into the company’s financial performance and position, and making recommendations for financial strategy and planning.

To simplify the difference, bookkeeping is focused on the recording and tracking of financial transactions, while accounting involves the interpretation and analysis of that financial data to provide insights and recommendations for financial management.  

At Accountix, we take on the responsibility of both of these roles in some capacity for all of our clients. For some clients, we simply ensure sound bookkeeping and provide high-level advice. For others we become their entire accounting and financial team…and then others are somewhere in between.  We work with the various needs of our clients. 

Why is bookkeeping important for businesses?

Bookkeeping is important for businesses because it helps them keep track of their financial transactions, monitor their cash flow, and make informed business decisions.

What are the different types of bookkeeping?

There are two main types of bookkeeping: single-entry bookkeeping and double-entry bookkeeping. Single-entry bookkeeping is a simple method that involves recording each transaction only once, while double-entry bookkeeping is a more complex method that involves recording each transaction twice.

Accountix focuses on double-entry bookkeeping to ensure accuracy and reliability.  

What is the difference between assets and liabilities?

Assets are resources that a business owns and that have value, such as cash, inventory, and equipment. Liabilities are debts that a business owes to others, such as loans, accounts payable, and taxes.

What is equity?

Equity is the difference between a business’s assets and liabilities. It represents the owner’s investment in the business and the profits that the business has accumulated over time.

What is revenue?

Revenue is the income that a business earns from its operations, such as sales of products or services.

What are expenses?

Expenses are the costs that a business incurs in order to operate, such as rent, salaries, utilities, and supplies.

Seven down, seven to go! To find the rest of these common bookkeeping questions, and get the Accountix answers, click here to read Part Two!