Table of Contents
Introduction
It can be really confusing to understand both the terms “Bookkeeping and ‘Accounting”. Both deal with financial data and are required to run a firm properly.
Difference between Bookkeeping and Accounting:
- Bookkeeping records the data and accounting analysis and interprets the data.
- Bookkeeping includes recording of Sales, purchases, managing invoices whereas accounting involves preparing financial statements.
- Bookkeeping can be handled by trained staff but accounting is done by a certified accountant.
Whether you are starting your business or at the expanding stage, it is important to know whether you need Bookkeeping, accounting or both for your business. It will save your time and money.
What is Bookkeeping?
Bookkeeping means recording a company’s financial transactions on a regular basis. Companies who maintain a proper bookkeeping system can track all the information and make important investment and financial decisions.
- Day-to-day financial tracking: It means daily recording, categorizing and organising of all the financial transactions of business. It includes:
- Recording Income: Sales, Interest or other income.
- Tracking Expenses: Purchases, Rent, Wages, Salaries etc.
- Invoice Management: Preparing and sending invoices, Follow ups.
- Bill Payments: Track of all bills such as Power.
- Petty Cash: Small amount of daily cash payments.
- Daily Cash Summary: Opening Balance + Cash received – Cash spent = Closing Cash Balance.
- Recording transactions: In Bookkeeping, all transactions are recorded systematically. Each transaction has date of transaction, Description, Amount, Payment method, Category, Reference number and party involved.
- Managing receipts/invoices: Managing receipts or invoices are important to track the money coming in and going out and to avoid the missed payments.
What is Accounting?
Accounting is the process of recording, categorizing, summarizing, analyzing, and reporting financial data for a firm. It goes beyond simple bookkeeping. It interprets financial data so that business owners, investors, and decision-makers may make informed decisions.
Functions of Accounting:
- Interpreting and analyzing data: One of the primary functions of accounting is to assess and analyze financial data obtained through bookkeeping.
- Interpreting data means to understand what your financial data says. For example: Is your cash flow strong? Are your expenses more than your sales?
- Analyzing the data means to look for patterns and trends that can help in making better decisions.
- Tax planning and compliance:
- Tax planning means actively handling your financial activities in order to lower your tax burden legally and efficiently.
- Tax compliance guarantees that your company meets all applicable tax laws at the local or state.
- Financial reporting: Financial reports like income statements, balance sheets and cash flow statements will provide an overview of a company’s financial condition. These reports are important for owners, shareholders and investors.
Key Differences Between Bookkeeping and Accounting
| Aspect | Bookkeeping | Accounting |
|---|---|---|
| Definition | It is the process of identifying, recording and classifying financial transactions. | It is the process of summarizing, evaluating, analysing and communicating financial data to shareholders. |
| Focus | Focuses only on day-to-day transactions. | It includes financial reporting, analysis and decision-making. |
| Skill Level | It can be handled by admin staff. | It requires Certified accountants. |
| Financial Position | It does not directly reflect the financial position of business | It helps in determining the financial position by preparing Profit & Loss and balance sheet. |
Which Does Your Small Business Need – or Both?
- Size-based guidance
- For Small business and Startups: Bookkeeping is sufficient at initial stages if you are just getting started or managing a one-person business. You can keep your books organised with the help of QuickBooks. But hiring an accountant is advisable to check your records periodically to ensure everything is accurate.
- Small to Medium-Sized businesses: As the business grows, financial complexity increases. Regular bookkeeping becomes necessary for day-to-day operations, and an accountant will help you with budgeting, tax planning, and financial strategy.
- Industry considerations
- If your business comes under those industries where a high volume of transactions take place, then Bookkeeping is essential. It helps you in recording every single transaction accurately. An Accountant will help in managing cash flow, preparing financial statements and strategic tax planning.
- If you are in professional services like consultants, you have no inventory to track. But for tax purposes, It is advisable to hire an accountant.
KP Accounting’s Integrated Bookkeeping + Accounting Services
- How your team bridges both needs: Our staff will not only record your data but also helps to understand it. We handle everything from accurate, real-time transaction tracking to detailed financial analysis and tax preparation. We provide both bookkeeping and accounting services under one roof.
- Tech-enabled solutions: We use Cloud based tools like QuickBooks and Xero so that you can access all your records from your phone or desktop at any time from anywhere. You can upload the receipts, check the reports without any formalities.
Conclusion
Bookkeeping and accounting have different functions but together they give your company a strong financial base. While bookkeeping keeps your records correct and up to date, accounting explains what the data means and how you can use them to grow your business.
Need help with both? Book a consultation with KP Accounting. We provide smooth and technology enabled bookkeeping services in New Jersey. Let our certified accountants handle all your data while you can focus on developing your business.
