Bookkeeping and accounting are both vital functions for your business, but contrary to popular belief, they are not the same thing. To help provide you with some clarity on this topic, we’re explaining the difference between bookkeeping and accounting and providing a more in-depth look at both roles.
What Is the Difference Between Bookkeeping and Accounting?
Bookkeeping generally refers to the day-to-day financial record-keeping — ie: keeping the books in order. Accounting is a higher-level process and refers to leveraging the data from bookkeeping and using it for specific purposes, such as tax preparation.
What Is Bookkeeping?
Bookkeeping is the process of recording and storing all of the daily financial transactions that a business, individual, or nonprofit organization completes. This is necessary to gather financial information that can be used by the accountant to fulfill a variety of functions.
Maintaining the general ledger is the key role of the bookkeeper or person in charge of bookkeeping. This is the basic document, usually, a spreadsheet, in which all transactions, both sales and expense receipts, are posted. Any data should be recorded chronologically or clearly labeled with the date in order to ensure accurate, easy-to-find details.
Common Bookkeeping Tasks
To better understand this role, let’s look at some common bookkeeping tasks that nearly all businesses need to perform:
- Recording financial transactions;
- Posting debits, such as expenses, and credits, like accounts receivable;
- Creating invoices and sending them to clients;
- Tracking outstanding invoices as well as recording those that have been paid;
- Preparing financial statements;
- Completing payroll;
- Maintaining the general ledger
Can a Small Business Do Their Own Bookkeeping?
We are often asked by business owners if they can do their own bookkeeping rather than outsourcing it. While most business owners can take on this task, especially with the help of bookkeeping software like Quickbooks, this can be very time-consuming, taking you away from growing your business. Instead, more business owners are relying on third-party accounting and bookkeeping firms to keep up with their financial data, save them time, and improve their accuracy.
What Is Accounting?
As we mentioned above, bookkeeping is the daily record-keeping, while accountants are responsible for the higher-level analysis and implementation of the financial data compiled by the bookkeeper. Often, small businesses, entrepreneurs, and nonprofits will do their own bookkeeping but outsource accounting to a CPA firm for an analysis of the financial health of the business.
Common Accounting Tasks
Like with bookkeeping, accountants have specific tasks they provide to the business or to their clients.
- Analyzing financial statements, including the cash flow sheet, balance sheet, and income statement, to determine the financial health of the organization.
- Looking for areas that are highly profitable versus areas that are costing money or generating no profit to show the business where to focus efforts.
- Analyzing operational costs to find opportunities to reduce loss.
- Completing income tax returns
- Providing in-depth presentations to the business owner, shareholders, or management, to show the overview of the analysis of income statements and other financial details.
Accountants are responsible for a wide variety of different tasks in order to improve the overall operations of the business. It is vital to work with an accounting service provider who has years of experience working with businesses of different sizes.
Schedule a Consultation with Our Raleigh CPA Firm
Whether you need assistance with your bookkeeping, want to outsource accounting tasks, including tax preparation, or need comprehensive financial guidance, we can help. Schedule a consultation with our team today by calling (919) 872-0866 or filling out the form below to get started.
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