If you’re in a small business, it’s important to understand the difference between bookkeeping and accounting. Bookkeeping is an administrative function that keeps track of your transactions. Accounting on the other hand is more detailed and includes things like income statements, balance sheets, and cash flow analysis (not just day-to-day transactions). Knowing which one to use can be tricky; this blog post will help clear up any confusion!
What is the difference between bookkeeping and accounting?
Bookkeeping is the process of tracking your everyday transactions and activities. Accounting, on the other hand, analyzes these same transactions to provide an accurate financial statement for your company. The major difference between bookkeeping and accounting comes in how they compile information about a business’ finances:
Bookkeeping is primarily concerned with managing day-to-day transactions and generating reports of cash-in and cash-out.
Accounting, on the other hand, is responsible for compiling these transactions into financial statements that provide a detailed overview of your company’s finances from month to month or year to year.
What do you need for your business?
No matter what your end objective is, the process will always need to start with bookkeeping. Bookkeeping tabulates the sales and expenses and takes the records (that may or may not be in a disorganized pile) and creates organized and accurate reports.
After you’ve gone through the process of categorizing, sorting, and reporting your bookkeeping information, it’s time to turn to accounting.
Accounting can vary in complexity – while every business will need to file their end-of-the-year reports for tax purposes – outside of this reporting requirement every business will have different requirements.
How to select your professionals?
Depending on the size of your business and the transaction volume you may or may not need a full-time bookkeeper (or team of bookkeepers) on staff. The volume of transactions is as important to this need is more important than the total volume. A business can do a million dollars in sales on one invoice, or thousands of invoices.
A bookkeeper is someone you will work closely with, and they should be a fit within your business culture. This person can be an employee, freelancer, or, business management agency.
Your accountant is a key member of your team, and experience and knowledge are critical. Remember, the cost vs. benefit discussion from a past post? This applies here also. A sole proprietor business will not have the same requirements as a seven-figure corporation, and therefore does not require the same professional. Connect with a few different people to determine what qualities you value most, and who will be the best fit for your business.
Can the same company do both?
Absolutely! A qualified professional should be able to provide a complete package of services that will bring your bookkeeping and accounting needs together. This is what you’re looking for because the best professionals in this field know how they can help streamline processes and make it easier for you as an owner.
Bookkeeping and accounting are two different functions in your small business. Bookkeeping is the process of tracking your everyday transactions and activities, while accounting analyzes these same transactions to provide an accurate financial statement for your company. Whether you’re looking for a bookkeeper or accountant, it’s important to find someone who can help streamline processes and make things easier on you as an owner.