Bookkeeping vs. Accounting: What's the Difference?
When it comes to the difference between bookkeeping and accounting, it can be a blurry line for many. However, understanding the difference is extremely important, especially as a small business owner! These two functions work hand-in-hand to provide you with information and insights about the finances of your company.
Bookkeeping vs. Accounting:
To put it simply, bookkeeping is responsible for identifying, measuring, and recording financial transactions while accounting summarizes, interprets, and translates this information.
Let’s take a closer look at each function to get a better understanding of the two.
What is Bookkeeping?
Bookkeeping consists of looking at the day-to-day finances of your business, generally using accounting software like QuickBooks. This will give you insights into the cash flowing in and out of your business. A bookkeeper will perform tasks such as:
Maintaining a general ledger made up of sub-ledgers such as accounts receivable, accounts payable, cash, and inventory
Recording income and expenses
Being organized and detailed-oriented is extremely important in this role to ensure complete and accurate records. If you’re unsure about what kind of records you need to keep as a business owner, the IRS provides a list of important business documents.
What is Accounting?
Accounting builds on the records provided by the bookkeeper and analyzes them. This process helps you understand how your business is doing financially. An accountant will perform tasks such as:
Verifying accuracy of accounting records
Preparing financial statements
Filing income tax returns
Communicating the impact of financial decisions
Analyzing journals and ledger entries
Providing tax and financial advice
Overall, accounting helps business owners understand the finances of the company and how it may affect the future of the business. It also provides data that can be used for decision making.
As you see, there may be overlapping between the two practices, but you can’t have one without the other. Both accurate bookkeeping and insightful accounting are crucial for the financial success of a business. Now that you understand the difference, it’s time to choose whether you want to perform these tasks on your own or hire a professional. These are functions that you don’t want to neglect! At Summit we provide a combination of bookkeeping and basic accounting services. If you find that your needing these services for your business, we’re here to help. Give us a call today for a free consultation!