As a business person, you should have encountered three frequently-used business terms – accounting, payroll processing, and bookkeeping. These three terms are used by people pretty interchangeably, and though there is a strong connection between them, they are significantly different from each other. For an entrepreneur, it is crucial to learn all the differences. Otherwise, errors may occur in managing business operations.
Also, once you know these differences, it will be easier to choose the correct professional for handling your company’s finances. For example, for effective payroll management for your Perth business, you will need to outsource a payroll perth service provider and not a bookkeeping service. This blog will help you understand the basics of these three terms.
What is accounting?
According to the standard definition, accounting is maintaining financial records, analysing and verifying financial transactions, and preparing final results based on the collected information. The four key aspects of business accounting are discussed here.
Preparing final reports
One key responsibility of a certified public accountant in Australia is to present the business’s financial information in a standard format of general-purpose financial statements. Usually, an accountant presents the reports in a balance sheet or an income statement.
On several occasions, accountants also present these reports to someone outside the office. In those cases, they follow specific financial reporting standards and accounting regulations set by the governing body.
Financial accounting is the process of managing all the business finances. You must be aware of several financial accounting terms to run your business successfully.
- Cash flow: Cash flow is the continuous flow of outgoing and incoming cash in a company.
- Accounts payable: The term ‘accounts payable’ refers to the monetary amount that a business organisation owes to its creditors.
- Accounts receivable: In contrast to accounts payable, accounts receivable refers to the company’s monetary amount that the clients or customers owe.
- Balance sheet: It is the financial statement related to business health.
- Liabilities: Liabilities mean obligations a business has to clear, including salaries payable, accounts payable, and interest payable.
- Assets: All that a business owns are assets – inventory, investments, equipment, buildings, and vehicles.
In addition to these six, other financial accounting matters include owner’s equity, general ledger, net income, etc. All these matters are crucial for a company to achieve success. Without having it in place, you cannot have a clear idea about the financial health of your business.
Management accounting can also be called internal accounting, and it includes budget planning, setting costs of items sold operation standards, and quotes.
Any individual who earns any income has to pay taxes on time. If you want your business to remain tax-compliant, make sure you pay taxes and lodge tax returns on time. Tax obligations may be different for different businesses, so you must consult with any qualified professional before proceeding.
What is payroll processing?
Another important responsibility involved in running a business is payroll processing. If you employ staff in your company, having an efficient payroll management team is necessary.
While the usual meaning of payroll refers to the list of workers employed in a company, the whole payroll processing system includes many things, as follows.
- A systematic procedure of calculating payments of the employees and distributing the necessary paychecks on the salary date
- Preparing financial records of the employees, including salaries, wages, deductions, bonuses, superannuation contributions, and withheld taxes
- The total amount of money spent in giving payments to the employees
- The specific department of the company that deals with calculating the paychecks
For seamless payroll processing, you will need to gather some specific pieces of information from your employees. Pieces of information will include the amount of salary or wages, time off, properly filled out W-4 forms, fringe benefits, and overtime allowances. Also, if your staff receives hourly payment, it is essential to keep track of the total work hours.
Ways to run a payroll system
There are three typical ways to run a payroll system in a company – outsourcing payroll, manual payroll processing, and using payroll software. All three processes are discussed here, and you must choose based on your requirements.
- Outsourcing payroll: Outsourcing payroll means you take external help to process your company’s payroll. Numerous service providers operating across Australia have been able to make a name for themselves. The key benefit of outsourcing payroll is that it will help you save time. Also, as a payroll professional will look after the whole procedure, you will know that it will comply with all the regulations.
- Using payroll software: Using top-rated payroll software can also be your option. The benefit of using software is that the whole process will be automated, and tax and wage calculations will be easier. The software is user-friendly, so the handler does not need to have high experience in the field.
- Manual payroll processing: Payroll processing by hand consumes a lot of time, and the risks of making mistakes increase significantly. With the business becoming faster, manual payroll processing is not something experts recommend these days.
What is bookkeeping?
As per definition, bookkeeping involves keeping records of, maintaining and retrieving important financial transactions of a non-profit organisation or a business. A bookkeeper usually records the following transactions:
- Supplier payments
- Bills related to selling services and products
- Receipts sent by the customers
- Decline in finances
- Accounts receivable
In addition, a bookkeeper also helps in financial reporting and payroll processing.
Like accounting and payroll, bookkeeping can also be outsourced, and outsourcing is the best option to consider at the beginning stages of your business. You may consult with firms providing top-rated bookkeeping services Perth and surrounding areas to get an idea about rates.
Alternatively, if you choose to manage your company’s bookkeeping on your own, it will be better to use any accounting software like QuickBooks, MYOB, or Xero. It will make the process smoother and faster and improve reporting accuracy.
The bottom line
You might have understood the key difference between the three processes from this blog. While accounting deals with various aspects of financial accounting, payroll processing and bookkeeping deal with giving payments and recording daily financial transactions, respectively. All three are parts of a business’s financial cycle but contribute in different stages.