What’s the Difference Between Accounting and Bookkeeping?

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Bookkeeping and accounting are both essential business processes. Both are important

methods of tracking your business finances, monitoring performance, and detecting red

flags early on. They also both involve a lot of numbers, spreadsheets, and accounting

principles. It’s easy to get them confused as they’re very similar in practice. However, there

are key differences between bookkeeping and accounting that you should know about

before hiring an accountant or bookkeeper. Accounting is a broader profession;

bookkeeping is just one aspect of it. Accountants keep records, analyze financial

transactions and report those transactions to third parties (such as tax agencies). On the

other hand, bookkeepers track transactions and help accountants manage financial data by

assigning standard codes for assets and liabilities.

Differences in process

Accountants start by assessing your current situation and identifying the areas you could

improve or optimize. They identify the key metrics you need to track and analyze the

financial data you’ve accumulated over the past year. Accountants help you make better

decisions in the future based on your current financial status and trends in your industry.

Bookkeepers start by tracking your current financial transactions. They identify the

necessary code for each transaction and ensure that your financial records are properly

organized and easily accessible. Bookkeepers also reconcile your bank statements and

ensure accurate cash flow reports.

Record-keeping vs. measurement

Accountants measure and evaluate your business performance. They look at a number of

important financial data points and metrics, including your sales, expenses, cash flow, and

financial ratios (such as profit margin and debt-to-equity ratio). Bookkeepers record the

financial transactions that happen in your business day-to-day. This includes everything

from purchases to sales and payroll. Bookkeepers also assign a standard code to each type

of transaction. This allows you to organize and search for data more easily. Accounting

records are much more extensive than those kept by bookkeepers.

Differences in tracking methods

Accountants generally deal with larger-scale transactions, such as the acquisition or sale of

property or goods, that require careful record-keeping. Bookkeepers track smaller-scale

financial transactions, such as payments and expenses. Accountants track inventory and

assets that your business owns. They also track your liabilities and debts you owe to others.

Bookkeepers track inventory and expenses that your business pays out. They track your

assets and liabilities as well, but on a much smaller scale.

Differences in what’s included

Accounting is a broader profession; bookkeeping is just one aspect of it. Accountants keep

records, analyze financial transactions and report those transactions to third parties (such

as tax agencies). On the other hand, bookkeepers track transactions and help accountants

manage financial data by assigning standard codes for assets and liabilities. They also

reconcile your bank statements and ensure accurate cash flow reports. Bookkeeping is a

necessary part of accounting, but there are many other important aspects of accounting that

bookkeeping does not include.

Conclusion

Bookkeeping and accounting are both important functions for most businesses. While both

deal with numbers and record-keeping, the fields are separate professions with different

skill requirements. The main difference between the two is that accounting involves a

greater variety of information and tracking methods. While accounting professionals handle

the records needed for third parties like banks or the government, bookkeepers primarily

deal with the financial transactions of day-to-day operations and the tracking of those

expenses.

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