The Differences Between Bookkeeping and Accounting
Many types of businesses will need to deal with numbers to keep their operations running as smoothly as possible. This means keeping track of every transaction — sales, expenses, salary payments — to maintain stable and financially healthy operations. Many people tend to confuse bookkeeping with accounting, which primarily handles broader tasks than bookkeeping. With that in mind, we’re here to lay down the key differences between the two and why your business will need both to maintain a healthy financial status.
What is Bookkeeping?
Bookkeeping is all about handling the records and financial activities of a business. It is an indispensable branch of accounting. In that regard, it includes the process of storing, gathering, accessing, and organizing an organization’s financial information to facilitate day-to-day operations and prepare financial statements for tax returns.
Bookkeepers are also responsible for keeping track of transactions in chronological order, which can be easily and efficiently done through various accounting software available online. Keep in mind that there are bookkeepers who can also summarize financial data in reports, similar to one of the sub-set responsibilities of an accountant.
A good bookkeeper can help a business keep daily records, but a great one will know how to provide solutions and make order out of chaos. To that end, the list below are all necessary tasks a bookkeeper should be able to do:
● Reconciling bank transactions
● Raising sales invoices and following up on debtors
● Ensuring correct tax treatment and coding of transactions
● Lodging sales tax, GST, or VAT
● Preparing reports on Profit and Loss or Balance Sheet
● Preparing a cash-flow forecast
● Entering supplier bills
● Handling payrolls
What is Accounting?
Accounting is an essential function in any given business as it is designed to summarize, interpret, and communicate financial transactions that are classified in the ledger account. As such, it is the accountant’s responsibility to make reports on the financial data of a business to help companies make informed business decisions.
While the objective of bookkeeping is to keep records of financial transactions, accounting is all about gauging an organization’s financial situation. Accountants also have the power to make critical business decisions and communicate with authorities if needed. To that end, accounting is generally more complicated as it is analytical in nature. Also, the records submitted by bookkeepers contribute to an accountant’s overall analysis of the data.
Accounting also controls the bookkeeping system, which is designed to detect and prevent theft, embezzlement, and fraud. In essence, accounting touches on the following:
● Recording expenses
● Preparing company-wide financial statements
● Analyzing the costs of operations
● Completing income tax returns
● Creating financial reports to help business owners make informed financial decisions
The Bottom Line
In summary, accounting handles the recording, interpreting, classifying, analyzing, and reporting of financial data. Meanwhile, bookkeeping is all about recording financial transactions. While they differ in function, both work towards the same goal – to help your company maintain financial soundness. To that end, accounting and bookkeeping should work hand-in-hand as both are necessary elements in providing accurate financial data for your business, and strive to help business owners make informed decisions for the best possible outcome.
If you’re looking for Bookkeeping by QuickBooks Certified ProAdvisors, get in touch today! We’re happy to help.