Dallas-based BenefitMall is a firm that offers payroll and benefits administration services. The company does not offer bookkeeping or accounting services. Likewise, there are certified public accountants (CPAs) that, while they could offer bookkeeping and payroll, do not. Then there are bookkeepers who do exclusively that.
What does it all mean? It means that bookkeeping, accounting, and payroll are not the same thing. Some of what they involve overlap, but each is a separate discipline that requires a separate body of knowledge. This matters to small business owners who realize they can no longer handle bookkeeping, accounting, and payroll themselves.
Of the three disciplines, bookkeeping is perhaps the easiest and most general in nature. Bookkeeping is also the first step in the complete accounting of business’s finances. It involves chronicling all the company’s day-to-day financial transactions. In essence, it is keeping the books on a daily basis.
Bookkeeping addresses, but is not limited to, the following:
- Maintaining a general ledger of transactions
- Creating and distributing customer invoices
- Receiving and recording of vendor invoices
- Receiving and recording customer payments
- Paying vendors
- Logging all cash receipts and expenditures.
Bookkeepers have a lot of details to keep track of. They are the first line of defense, so to speak. How they do their jobs affects how accountants and payroll experts do their jobs as well.
It is possible for an accountant to do bookkeeping work. However, such arrangements are rare. Accountants have more complex work to address on behalf of their clients or employers. An accountant’s main function is to process, analyze, and interpret a company’s finances for the purposes of maintaining tax and reporting compliance.
Tax expertise is generally that which separates a bookkeeper from an accountant. An accountant is a certified tax expert who can also advise on a company’s present and future tax positions. As such, accountants have a fiduciary responsibility that does not necessarily apply to bookkeepers.
Payroll is completely separate from bookkeeping and accounting in the sense that it does not deal with the company’s general finances. Indeed, payroll is but one small part of the financial equation. The payroll professional’s primary responsibility is to process payroll and ensure that the company remains compliant in all payroll related issues.
A typical payroll department tallies up hours worked and then determines how much employees should be paid for that pay period. All of the information is entered into a computerized payroll application, either manually or automatically. Next, the payroll department processes payroll. What does this mean? It means numbers are recorded and payment made.
Payroll is also responsible for handling employee withholding for income tax and FICA. Where state and local taxes are withheld, payroll handles them as well.
There are times when companies combined payroll and human resources into a single department. This is often done for efficiency’s sake. There may not be enough work to keep separate departments busy, so combining them keeps everyone busy without duplication.
Similarly, there are times when bookkeepers also handle payroll. In such cases, it is usually a scenario in which a company is small enough to not require a large payroll or HR department. The company only has a handful of employees, making payroll quite manageable for the bookkeeper.
The Right People for Each Job
Regardless of how bookkeeping, accounting, and payroll are all handled, the key to minimizing problems is to hire the right people for each job. Again, all three disciplines require a different body of knowledge. It really does pay to have the most knowledgeable people in place.