What's The Difference Between Bookkeeping and Accounting?
If someone asked you the difference between bookkeeping and accounting, would you know how to answer them? Don't worry if not - you will by the end of this article!
Learning the difference between these two processes can help you make your business more efficient and more profitable. By doing both your bookkeeping and accounting more effectively, you'll help your business grow.
Have a read through this guide - it will explain the difference between the two processes, as well as give you a few bookkeeping and accounting tips you can use.
1) Bookkeeping
What is Bookkeeping?
Bookkeeping is all about keeping an accurate financial record - and that means recording the day-to-day financial transactions of your business in a way which is consistent and complete.
Which means things like:
• Issuing invoices and bills to clients
• Recording invoices and bills from contractors
• Processing payroll
• Recording cash receipts
• Keeping an up-to-date general ledger (where all sales and expenses are recorded)
• Recording any changes in inventory (e.g. products sold or returned)
This should give you a complete picture of all your income and expenditure, with full documentation to back up every transaction recorded.
3 Tips for Bookkeeping Success
Effective bookkeeping means you'll have well-organized financial records and well-balanced finances. Which is why it's so important to get it right!
1 - Make sure you have a system in place for your bookkeeping. Defining a standard procedure will make keeping good records much easier and ensure that nothing gets missed.
2 - Make backup copies of EVERYTHING and consider uploading your documents directly to a cloud-based software. If you're ever audited by the tax authorities, you'll need to provide bookkeeping documents as evidence, which is why it's important to keep them safe.
3 - If you don't have a head for numbers, your business is large (or growing rapidly), or you're struggling to stay organised then it's worth hiring a bookkeeper to help you!
Also check out our helpful bookkeeping tips for business owners here.
2) Accounting
What is Accounting?
Accounting uses your financial records and information to analyse your business - which gives you a clearer picture of your company's profitability and actual cash flow.
It involves activities like:
• Strategic tax planning
• Analyzing company running costs
• Creating a budget for the business
• Setting up a general ledger and bookkeeping system
• Compiling and filing tax returns
• Preparing financial statements and reports
• Putting together financial forecasts for future profits
• Recording adjusting entries (aka any income/expenses which weren't recorded during the bookkeeping process)
This should give you a higher level overview of your business and put you on track for a more profitable future.
3 Tips for Accounting Success
Good accounting gives you a solid financial strategy and keeps your tax returns accurate. Which can reduce problems and increase profits!
1 - Make sure you have an accounting software you feel comfortable with. If you're doing your own accounting, it's important to have a software you know how to use.
And if you use @Assist, you're in luck: it comes with an easy-to-use accounting platform already built into it.
2 - Give yourself plenty of time to do your taxes. If you rush and do a last minute job, you'll be more likely to accidentally out on miss tax deductions or even file your taxes incorrectly.
3 - Use your financial statements to your advantage. They'll give you the information you need to come up with strategies for improvement, increase efficiency by reducing unnecessary expenses, and identify your company's strengths and weaknesses.
3) Bookkeeping vs Accounting
Now that you're familiar with the details of what both bookkeeping and accounting involve, here's a summary of the two main differences:
1) They have a different focus - bookkeeping is all about the details, while accounting is all about the big picture.
2) They have a different function - bookkeeping is a process to keep accurate financial records, while accounting is a process to create a smart financial strategy.
But there are also some similarities…
1) They're both vital for the success of your business - the data which careful bookkeeping provides is vital for the analysis which accounting involves, and that analysis creates the strategy your business depends on.
2) They can both be made easier with technology - whether that's by using a software which auto-generates financial statements, or by keeping your records online to avoid drowning in paperwork. So use technology to your advantage!
Do you do your bookkeeping and accounting yourself? Or have you outsourced one or both of these processes? Let us know in the comments below.
