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The Difference between Bookkeeping and Accounting: Why Analysis Matters

October 13, 2017 | Carl Corneliuson
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    An accountant reviewing financial reportsTo some business owners, accounting and bookkeeping are perceived as the same thing. The confusion is understandable — these two services are closely related, yet they have distinct purposes. These responsibilities are an essential part of any business, so it’s important to learn the difference between bookkeeping and accounting before choosing a team to handle your company’s finances. Read on for our breakdown of accounting vs. bookkeeping for business owners.

    The Purpose of Bookkeeping

    Daily monetary transactions are what keep many businesses moving, and it’s essential to record these exchanges closely. Without procedures in place to track transactions (including payroll), a business is left guessing where its money is coming from and going to.

    In order to track transactions consistently and accurately, a bookkeeper will use a tool called a ledger. Today, most ledgers are completely software-based. This makes it easier to quickly record and access all payables and receivables.

    Of course, anyone can claim to have made a purchase or sold an item, so it’s best to keep source documents, such as receipts, in case of an IRS audit. These documents provide proof that a transaction occurred, so they are the best way to back up the validity of a ledger. Common source documents include:

    • Invoices
    • Receipts
    • Credit memos for refunds
    • Employee time cards
    • Purchase orders
    • Deposit slips

    The Purpose of Accounting

    When compared to bookkeeping, accounting is more of a high-level business task. In fact, accounting cannot exist without solid bookkeeping to back it up. The main difference between these processes is the addition of analysis in accounting. While bookkeeping is more about plugging numbers in the right places, accounting analyzes and makes sense of those numbers. It is more of a subjective task, but one that is important in forecasting growth.

    Accountants organize financial indicators and make sense of them. This is important for creating accurate financial statements that paint a picture of a company’s profitability and trajectory. In addition to profits, accounting analyzes a business’ current cost of operations. When a business owner is looking to cut costs but doesn’t know where to start, accounting services make decisions easier.

    Some other accounting responsibilities include:

    • Revising inaccurate bookkeeping entries
    • Creating financial statements
    • Preparing income tax returns

    Accountants use all the information they have to help companies become more profitable. This means they are qualified to provide financial advice when a business owner requests it. Whether you need help with profit forecasting or tax planning, an accountant is a sidekick worth turning to.

    Bringing Both Services Together

    Accounting and bookkeeping are designed to work in tandem, helping business owners tackle both transactional and analysis responsibilities. If you’re looking for a full-service financial solution that incorporates bookkeeping and accounting, our team can help you get all your ducks in a row.

    No matter your industry, we understand your unique financial needs. To get started with expert accounting and bookkeeping services, reach out to our team today!