the differences between Bookkeeping and Accounting

Bookkeeping and accounting are both critical for a small business. However, they each have their own unique set of responsibilities.

Bookkeeping is a process of recording transactions and other information in a book or ledger. You use it to keep track of the financial records of a company or organization.

It includes all aspects of financial transactions such as sales, expenses, payroll, etc. Bookkeeping also includes tracking inventory levels and vendor payments.

Bookkeeping usually consists of four main pieces: journal, trial balance, general ledger, and subsidiary.

·         Journal: It records all transactions that occur the day or week after they happened. It gets used to record all transactions that occur during a given period.

·         Trial Balance: It shows the accounts on the left side and the correct liability accounts on the right side. The reports are arranged from left to right, from the newest account on the left (beginning) to the most recent current information on the right (end). This way, you can see which transactions have gotten recorded in the journal.

·         The general ledger is an account book that contains all the accounts of a business or organization.

·         The subsidiary ledger is a smaller book containing the details of each account in the general ledger.

·         Today Bookkeeping is recorded in various accounting softwares like Quickbooks or Xero.

On the other hand, accounting is an organized way of recording transactions that can get used as a basis for planning and control in an organization or business.

It includes preparing financial statements like balance sheets, profit and loss statements and statement of cash flows. Analyzing an organization’s or businesses financial condition through various ratios like benchmarking, return on assets (ROA), return on equity (ROE), or tend analysis ratio.

The primary purpose of accounting is to provide helpful information about your organization’s assets, liabilities, profits, and expenses to aid a small business in growth to investors and others interested in your financial condition.

Differences Between Bookkeeping And Accounting

Bookkeeping and accounting are very similar, but they have some significant differences.

·         The main difference between bookkeeping and accounting is that bookkeeping is used to record and organize financial data. Accountanting is used to interepret and present the financial data the bookkeeper prepared, to the business owner.

·         Bookkeeping is the process of recording every dollar and cent that comes in and goes out of your business. The purpose is to ensure you’re not spending more money than you take in. Also to paint an accurate picture of your company’s financial health.

On the other hand, accounting is about finding ways to increase profits and cut costs by analyzing and interpreting the financial statements. It also includes figuring out how much profit you made over the course of the year and how much taxes are owed each quarter.

·         Accounting is concerned with recording all financial transactions in a company to make sure a company is operating at peak performance through the financial data, which was prepared by the bookkeeper.

·         Bookkeeping also involves monthly reporting, whereas accounting analyzes or audits the financial statements to advise or state an opinon on the financial position of the company

·         Bookkeeping is the process of maintaining records of financial transactions, while accounting is the process of analyzing and advising the small business owner to be more profitable with these records.

·         Bookkeepers and accountants share very similar roles in the accounting industry today. However, Accountant’s have a little more repsonsibilitites like auditing, analyzing, interpreting and advising on the financial statements

Conclusion

Bookkeeping and accounting are two different types of work. An accountant will help you with bookkeeping, but they are two different ends of the same coin. Bookkeepers do daily accounting tasks such as checking bank statements, ensuring transactions are accurately recorded and mapped to the correct accounts to produce and accurate picture of the company’s health. Accountants focus more on the larger picture, such as finding trends in the financial or reasons why expenses increased to find a way to reduce costs find the maximum tax deductions and become more profitable.

It’s important to note that there is no right or wrong answer when choosing between a bookkeeper and accountant. It’s all about what works best for your business, so if your business does need help with bookkeeping, then a bookkeeper will be able to provide this service for you.