It is understandable when a business owner assumes that hiring a business accounting agency means the provider will handle everything on money. Though, in many cases, the services of the accounting package may be quite limited.While one accounting agency may take care of bookkeeping and monthly reports, another provider may also give payroll, tax filing, and financial advisory support.
To be aware of the differences makes you choose a suitable accounting package for your business needs. One accounting package can seem quite comprehensive yet not cover all the areas of your financial operations and responsibilities that require attention.
A clear view of the types of services an accounting firm gives should make your decision of the right accounting partner easier and cost estimation accurate. In addition, you will be spared all confusion about responsibilities and will never be charged for extra functions.A list of services accounting companies usually offer, the ones that might need another agreement, and the questions you should ask when selecting a company for the work are provided below.
The Core Functions Covered by Business Accounting Services
For the most part, accounting software programs are designed using a series of common and regular financial duties. Although the details may differ across vendors, these business accounting features are the ones that you tend to use most.
Bookkeeping, Reporting and Compliance Explained
Do not see accounting as a list of various and separate functions but rather as a networked system. Transactions have to be recorded properly so that the books can get reconciled after that. Reconciled ledger entries form an accurate base to produce financial records and those will finally help you keep your company's compliance and make business decisions.
For quick reference, here are the core functions typically found in an accounting package:
1. Bookkeeping and Transaction Recording
Bookkeeping is usually the starting point.
The accounting provider records and organizes day-to-day financial activity, such as:
- Sales and customer payments receipts
- Business expenses
- Vendor bills
- Credit card transactions
- Deposits and withdrawals of bank accounts
- Loans and other related financial activities
- Owner contributions or withdrawals
Categorization of transactions follows the company's chart of accounts to ensure proper reporting of a business' income and expenditures.
Though, efficient recordkeeping is not just entering numbers into accounting software as they come. The records must not only be comprehensive and correctly assigned, but also must be updated regularly. Otherwise, business reports may be quite a bit distorted.
2. Bank and Account Reconciliation
The process in which the internal records such as the accounting records are matched with the external accounts (i. e. the financial statements from banks, credit card companies, etc. ) is termed as reconciliation.
As an example, a provider might reconcile:
- Business bank accounts
- Credit card accounts
- Loan accounts
- Payment processor accounts
- Other relevant financial
The point here is that, a business may have recorded every transaction within its accounting system but, in absence of regular reconciliations, those records might be misleading. So, it is best to keep reconciling accounts on a regular basis.
3. Accounts Payable
Accounts payable represents a business's outstanding debts.
According to the level of service, an accounting provider may:
- Record vendor invoices
- Manage payment balances
- Set up a payment schedule
- Check vendor accounts
- Make accounts payable statements.
Just because a bill is entered does not mean the accounting staff are responsible for the approval or payment. The payment authority may still lie with the business owner or to a person they have empowered.
4. Accounts Receivable
Accounts receivable is about tracking and managing the unpaid invoices from your customers as per their contracts or agreements
Services provided by AR specialists are typically:
- Keeping track of invoice raised by customers
- Monitoring the open balances
- Applying the amount paid by customers
- Checking the overdue invoices
- Generating aging reports
Some service companies do include helping with the collection process or follow-up with the customers, but that part shouldn't be taken for granted without asking.
5. General Ledger Management
The company's financial transactions, organized under specific accounts, are represented in the general ledger.
Ledger activity is an area which Accounting professionals might look to uncover:
- Misapplied classifications
- Unique nature transactions
- Replicated entries
- Unsorted balances
- Posting of transactions to wrong accounts
Keeping the general ledger properly updated is important for producing uniform financial reporting, and also a good means for a clear view of what a company's financial health is all about.
6. Financial Reporting
Financial reports turn accounting records into information that business owners can actually use.
Common reports include:
Profit and loss statement: Shows revenue, expenses, and profitability over a specific period.
Balance sheet: Shows assets, liabilities, and equity at a particular point in time.
Cash flow statement: Helps explain how cash is moving into and out of the business.
Accounts receivable aging: Shows outstanding customer balances and how long they have been unpaid.
Accounts payable aging: Shows bills and other obligations the business still needs to pay.
General ledger reports: Provide detailed transaction-level information.
The frequency of reporting can vary. Monthly reporting is common, but some businesses may need weekly, quarterly, or customized reporting.
7. Tax and Compliance Support
Accounting records play an important role in tax compliance. Depending on the package, an accounting provider may organize financial information, prepare tax-related reports, coordinate with a tax professional, or handle certain filings.
But there is an important distinction:
Accounting support does not automatically mean tax preparation is included.
Some firms provide accounting and tax services together. Others keep them separate. Businesses should confirm exactly which tax returns, filings, and compliance tasks are included.
8. Accounting Software and Record Maintenance
Many accountants or bookkeepers also provide services related to keeping the accounting system operating smoothly.
Their duties might also include :
- Making sure all necessary accounts have the right names and that the chart of accounts is not too complicated.
- Regularly updating and storing accounting documents.
- Examining the output of computer-generated reports.
- Ensuring user roles and access levels are up to date in the system.
- Helping implement or update accounting software (and, if relevant, managing data import/export, or integration with other systems).
- Managing financial records storage and retrieval
It is a good idea to clarify the scope of accounting service offerings with a provider to check if a service like monthly technical support by phone, initial implementation support, license renewals, license transfers etc. come as part of the services.
What's Often Thought to be Included in Business Accounts Services But Actually Isn't
What's Often Mistaken for Included in Business Accounting Services But Isn't
Many people make the mistake of thinking that "accounting" is a broad term that covers all of the financial support a business may need.Fact is, accounting packages may cover a wide range with differences in the actual services offered.
These extra services may be offered by the accounting provider but not included in the regular package:
- Payroll service: A payroll service alone may be needed for wage calculation, taking into account deductions, taxes, and making employee payments.
- Filing taxes: filing and preparing federal, state, or local taxes might be priced on a separate note.
- Tax planning: tax planning as a process takes more in-depth advice compared to regular bookkeeping.
- CFO services: Forecasting, financial modeling, cash flow strategy, budgeting, and other higher-level financial advisory are not always included.
- Audit services: Preparing for audit and the act of audit itself are different.
- Collection: Monitoring unpaid invoices doesn't guarantee customer contact or collection action.
- Bill payment: Registering and organizing bills does not always mean the provider will authorize and pay them.
- Business consulting: Broader operational and strategic consulting may sit outside the accounting engagement.
How These Functions Work Together Month to Month
The real value of accounting is in having good coordination among the functions that are responsible. If we think of a company, we could imagine that during a usual month, it may go through this process:
- Financial activity happens
- Transactions are captured onto computer
- Accounting for each account is reconciled
- Records are checked
- Financial reports are created
For example, suppose a company makes several sales, pays suppliers, uses a business credit card, and receives customer payments during the month.
Those transactions must initially be recorded and classified. The bank and credit card accounts are then compared with the bookkeeping records. Outstanding customer invoices and vendor bills are examined.
After the books are complete, financial reports will be compiled. The level of analysis, however, can differ between packages. A basic service may deliver monthly reports without much discussion. A more comprehensive engagement may include financial reviews, trend analysis, and recommendations.
Questions to Ask About What's Covered in Your Package
Before selecting a provider, define exactly what is being provided. One firm's "full-service accounting" may be entirely different from another's.
- What bookkeeping activities are recorded on a monthly basis?
- What accounts will be reconciled?
- What is the periodicity for doing reconciliations?
- What financial statements will I be receiving?
- At what times should these reports be given?
- Is "payables" or "receivables" used?
- Does it include in the calculation: - is there any business tax return?
- Is it part of the service tax planning or just bookkeeping for tax?
- As it is your business, who will take care of the sales tax and other filings that may be necessary?
- Will anyone examine the money involved?
- Is the cost of using accounting software accounted for?
Inquire about the data the provider will require from you.You might also still be in charge of processing payments, documents, and answering questions from accountants, reviewing reports, or granting access to banking or accounting systems.All of this should ideally be contained in a written engagement letter or scope of services.
What we are trying to achieve is not a long list of services. What we are trying to achieve is who does what, when they do it and what you pay for it.
Understanding business accounting services is relatively simple once you know how to separate your regular accounting practices from any other financial services.
Oftentimes, an accounting package tends to cover bookkeeping reconciliations, general ledger maintenance, the cycle of a payable and receivable account, and reporting.
Once you're clear about the accounting service breakdown beforehand, selecting the right service should be less daunting while you compare the options with your business requirements and budget.
Contact The Fino Partners today to discuss your accounting needs and get a clearer understanding of the services your business may require.
