“Accounting” is a word we have all heard many times, but what does it actually mean? From preparing financial reports for shareholders to analyzing past data for improving future financial efficiency, accounting services can be a useful tool in many scenarios. Accounting and tax services for small businesses can also alleviate much of the stress that comes with entrepreneurship. Even an individual (especially high-net-worth individuals) can utilize accounting services for preparing tax returns and reducing tax liability.
For those thinking they could benefit from accounting services, read on for accounting service examples and answers to commonly asked questions.
What Are the Types of Accounting Services?
Accountants are equipped to assist individuals and organizations with a wide range of financial needs. We have put together a general list of accounting services to help determine what financial needs an accountant may help you meet.
- Auditing: The more complex a business’s finances are, the higher the chance of innocent mistakes in financial records. An accountant conducting external or internal audits uses common accounting principles to pinpoint those mistakes and verify compliance with state and federal laws.
- Cost accounting: Figuring out the costs associated with your business or the services you provide can be tricky, as many factors come into play when determining the actual costs. Cost accounting can help businesses determine which services or products are not profitable and devise ways to make them profitable.
- Financial accounting: An accountant focusing on financial accounting will assess the general monetary performance of an organization. Using that assessment, an accountant can prepare standard reports for all entities that would require a financial report, such as the IRS or shareholders. They can also provide advice based on these reports to develop a business’s wealth and growth strategy.
- Forensic accounting: Where there is known financial crime (such as bribery or money laundering), there is forensic accounting. Large organizations, law enforcement agencies, and even the FBI and IRS rely on forensic accounting to expose evidence that can lend itself to solving a financial crime.
- Tax services: Many people are familiar with utilizing an accountant for preparing their annual tax returns. An accountant’s thorough knowledge of state and federal tax laws can also assist businesses and individuals with managing current and future tax liability.
- Management accounting: This type of accounting looks at the broad history of a business’s finances and how it relates to current economic trends. Using this acquired data, an accountant can advise upper management on improving business performance and other financial decision-making.
- Payroll processing: Processing payroll is a popular task to hand off to an accountant. Payroll can get complicated when it comes to following state and federal laws, so businesses frequently choose to hire an accountant to manage this for them.
What Is the Difference Between Accounting and Bookkeeping?
As you can see, the world of accounting is vast. Perhaps after reading the above accounting service examples you still are not sure which service would suit you best. Maybe you already have a bookkeeper and think that is enough to support your business’s finances.
Although a bookkeeper is certainly a beneficial asset to a growing business, bookkeepers cannot provide the high level of support and advice that an accountant can provide.
While the operations of a bookkeeper and an accountant may overlap from time to time, the skill sets of each are different. Generally, a bookkeeper tends to deal with a business’s nitty-gritty day-to-day operations (such as keeping a general ledger or recording payments), while an accountant can give business owners feedback on improving the health of their business’s finances.
More importantly, accountants who identify as CPAs (certified public accountants) must have met state licensing requirements. Each state has slightly different requirements, but all states have an experience or education threshold and require the anticipated CPA to sit for a licensing exam. Many states also have laws regarding accountants that are not licensed, strictly designating them to bookkeeping services and tax preparation only. To illustrate, the Indiana Professional Licensing Agency specifically states that unlicensed individuals are not permitted to “issue audits, reviews, financial statements, or compilation reports.”
For those who do not require higher-level accounting and tax services for small businesses, a bookkeeper may be the ideal choice for reaching a business’s financial goals. As a business grows, however, the need for a licensed accountant may grow as well.
How Much Does It Cost to Hire an Accountant?
Many business owners find that hiring someone to take over their business accounting can alleviate some of the neverending stress that comes with entrepreneurship. The most common annual cost for small business owners ranges from $2,500 to $7,5000 according to this report by SCORE. Much larger businesses with complicated finances may spend over $25,000 per year on accounting services.
When considering hiring an accountant, it is important to keep in mind the amount of time you will save handing your accounting tasks over to a professional. This time could be spent on your family and friends or simply growing your business further. Additionally, an accountant’s knowledge of financial standards and laws is usually much more developed than the average layperson, providing you with another layer of financial security.
Finally, in identifying an accountant, it’s critical to find an accountant that is proactive in their communication with you. Working with accountants in advance of decisions can help reduce taxes and alleviate stress. After a decision is made, the accountant can only record the tax impact.