Bookkeeping vs. Accounting: What's the Difference?

Bookkeeping and accounting are terms that are often used interchangeably, but they actually refer to different processes within financial management. Knowing whether you need bookkeeping or accounting services can help you make informed decisions when hiring or outsourcing for your business.

Bookkeeping vs. Accounting

Simply put, bookkeeping is the process of categorizing and recording financial transactions while accounting is used to summarize, interpret, and analyze financial statements. 

Let’s take a closer look at each function to understand the two better.

What is Bookkeeping?

Bookkeeping involves recording the day-to-day financial transactions of your business, typically using accounting software like QuickBooks. This process provides valuable insights into the cash flow of your business, helping you track the money coming in and going out. A bookkeeper may handle tasks such as:

• Preparing and recording journal entries

• Reconciling bank accounts against bank statements and other source documents

• Issuing invoices and tracking payments from customers (also known as accounts receivables)

• Paying and recording payments to vendors and suppliers (also known as accounts payable)

• Processing payroll and filing payroll tax reports

• Preparing monthly financial statements

When working with a bookkeeper, you will provide financial documents such as gross receipts, bank statements, and invoices. These documents help ensure that all financial transactions are accurately recorded and accounted for.

What is Accounting?

Accounting involves a deeper analysis of the bookkeeping records to offer a comprehensive understanding of your business’s financial health. While bookkeeping focuses on the accurate recording of daily transactions, accounting takes this data and interprets it to provide meaningful insights. An accountant may perform tasks such as:

• Analyzing financial statements

• Filing income tax returns

• Providing tax and financial advice

• Budgeting and forecasting

• Cost-benefit analysis

An accountant helps you understand your finances and the potential impact on your business's future. They provide crucial analysis and strategic advice that aid in making informed decisions and fostering long-term success.

Conclusion

As you can see, bookkeeping and accounting serve a distinct and essential role in the financial success of your business. With a clear understanding of their differences, you can now decide whether to handle these tasks yourself or hire a professional.

At Summit Bookkeeping we provide a combination of bookkeeping and basic accounting services tailored to your needs. Contact us at (360) 756-5020 to find out how we can help your business thrive!