Bookkeeping and accounting are key practices that are essential to the success of any business, big or small. But have you ever wondered that the difference between the two is? In this article, we will break down the differences between bookkeeping and accounting, for anyone who is business-savvy.
What Is Bookkeeping?
Bookkeeping is the process of entering your organization’s spend into a system, either automated or manually, every time a transaction occurs. Bookkeeping is a data-entry heavy field, requiring your financial expert to be a wiz at checks and balances. Bookkeeping involves:
One of the main responsibilities of a bookkeeper is to record transactions made by the business. This can be everything from company lunches to electric bills, and everything in between. Transactions can be made in many ways, either automatically or on various company credit cards. Your finance pro will need to have access to all of these systems to ensure accurate reporting.
The reconciliation process is yet another crucial aspect to any bookkeepers day to day activities. Reconciliation is the process of ensuring that transactions align with payments made. For example, if a company credit card is charged $500 for a purchase that was only supposed to cost $200, the reconciliation process would catch this error.
Generating Financial Reports
Generating financial reports is a practice every business must complete, especially if they are a publicly traded company. Financial reports are essential data gold mines that show how well the company is performing in terms of cost and profit.
What Is Accounting?
Next, we will dive into the world of accounting. Accounting is a more robust and comprehensive financial management practice when compared to bookkeeping. Some of the tasks in accounting include:
Budgeting and Planning
Budgeting and planning are an important part of any accountants toolkit. Accountants advise the business on how to spend, where to spend, and how much to spend in order to achieve certain goals. For example, if a company wants to become profitable, the accounting team will create a budget to ensure input is greater than output.
Tax Planning and Compliance
Taxes and compliance can be a struggle for anyone – especially if you own a small business! Reporting your taxes should be considered a year-round occurrence, not one that only appears around April. Your accountant will make sure your business has filed accordingly and will even store financial reports and documents from the IRS for years to come on your behalf. Plus, if something doesn’t look right and the IRS contacts you, your accountant will take care of the issue so you can be worry-free.
Each quarter, your accountant will be able to create a detailed financial report to present to leadership, employees, and even investors. You can consider this a health-check for your business, as it shows profitability, spend, and overall organizational success.
We hope this article helped you better understand the difference between bookkeeping and accounting. To get professional expertise for your business, contact Bottom Line Consulting today.