Most people get confused between bookkeeping and accounting. While these financial roles share a few similarities, they support different accounting processes. As a business owner, you must know the difference between accounting and bookkeeping. Let’s get started:
What is bookkeeping?
Bookkeeping is the practice of tracking and recording all financial transactions in a business’s original books of entry. This process involves summarising and organising the company’s financial activities in a systematic way.
Small business bookkeeping focuses on the daily financial activities and transactions of a business. Bookkeepers are responsible for maintaining and recording the books of accounts, which include transactions such as tax payments, sales revenue, loans, interest income, payroll, operational expenses, and investments.
Keeping the books of accounts current is essential, as they form the foundation for accounting. The precision of bookkeeping directly impacts the accuracy of the accounting process within a business.
What is accounting?
Accounting is the process of analysing, interpreting, summarising and reporting a company’s financial transactions. The financial statements prepared in accounting show a summary of financial transactions during an accounting period. These statements provide insight into the company’s financial status and cash flows.
Accounting makes it easy for a business owner to make wise business decisions. Small business tax accountants are responsible for managing the tax affairs of business owners. Accountants maintain the records of financial transactions of a company into financial statements such as income statements, cash flow statements and balance sheets. The financial statements help to assess the company’s performance.
Bookkeeping vs Accounting
Bookkeeping involves recording all financial transactions on a daily basis. On the other hand, accounting is the process of analysing a company’s financial information to provide insight into the company’s financial health that helps in decision-making.
| S.No. | Bookkeeping | Accounting |
| 1. | Bookkeeping is the foundation of accounting. | Accountants use the information given by bookkeepers to prepare financial reports. |
| 2.
| Bookkeeping is a part of the entire accounting system. | The accounting process begins where the bookkeeping ends. |
| 3. | The result of bookkeeping acts as an output for accounting. | The result of accounting is used for making informed business decisions. |
| 4. | Bookkeeping aims to maintain an accurate record of financial transactions. | The accounting aims to report the financial status of a company. |
| 5. | The goal of bookkeeping is to make a summary of all financial transactions of a business for a specific time period. | The goal of accounting is to analyse and interpret financial information to make wise decisions. |
| 6. | The person who performs bookkeeping tasks is called a bookkeeper. | The person who performs accounting tasks is called an accountant. |
Similarities between bookkeeping and accounting
There are a few similarities between bookkeepers and accountants. Take a look at the following points to know what’s common between bookkeepers and accountants.
- Bookkeepers and accountants have a basic accounting knowledge of recording financial transactions and creating financial reports.
- Bookkeepers and accountants don’t actively participate in financial planning. However, both can record the company’s financial transactions.
Bookkeeping is a foundation of accounting procedures that’s why they are inseparable. If the bookkeeping is done properly, accountants can effectively perform accounting tasks based on bookkeeping. You can choose accounting or bookkeeping Melbourne based on your company’s requirements. Therefore, it is crucial to determine your company’s requirements before hiring an accountant or bookkeeper.
Does your company need a bookkeeper or an accountant?
Whether you need a bookkeeper or an accountant will depend on your business requirements. Investing in a bookkeeper or an accountant can bring significant returns. They will ensure you comply with tax obligations, help you grow your business and identify savings. They will save you time so you can use time for your business growth.
Conclusion
Bookkeeping and accounting have some differences, but they both share some similarities as well. If you are looking for someone to manage your business books, you can choose our Reliable Bookkeeping Services.