Cash flow concerns for your small business are like walking through a huge maze. You have to manage all the efficiencies of cash flow, including knowing where every dollar goes, paying invoices on time, processing payroll on time, and paying your taxes. When you do everything correctly, you ensure that it is viewed as a business expense without any confusion. The entire cash flow process, if done correctly, can be overwhelming. A bookkeeping manager and an accountant can help. Bookkeeping and accounting are not similar, but some of business owners use them synonymously. These two are perform two different things so it is necessary to understand the bookkeeping vs accounting. It is also helps to make better decisions for your business finances.
In this guide you can explore the bookkeeping vs accounting. We will also discuss each role and illustrate how both bookkeeping and accounting are essential to the soundness, legality, and financial organization of your small business.
What is Bookkeeping?
Bookkeeping is the way which are used to store recording of financial transactions of a company in a systematic way. The process of bookkeeping organizes all the financial transactions in a systematic way. Bookkeeping is the way that stores day to day transactions of a company and helps business owners to make major investment decisions. This is the bedrock of your company’s financial system and makes sure every dollar coming in or going out is properly tracked. Bookkeeping is handled by bookkeepers.
A bookkeepers handle tasks like:
- Record all payments of sale and purchase, and also record money received
- Manage the invoice you sent to your customer and vendor, or the bills you need to pay
- Check your bank statements and ensure all the transactions match the records
- Keep track of all of the company’s expenses and put them into the right categories
- Make a master list of all your financial transactions.
Imagine you are building a house. Financial transactions of your business are like a brick that forms the financial structure of your company. Without good bookkeeping, it is really hard to know where your money is going or if you are even making a profit.
What is Accounting?
Accounting takes all of the raw material recorded by the bookkeeping process and presents it in a way that you can make sense of and use. By using accounting you can analyse, interpret and summarise the financial data which are record in bookkeeping process. An accountant will take the recorded data and create reports for you including your tax returns, and provide recommendations for your financial plan.
An accountant performs many different tasks. For your business an accountant may:
- Important financial statements are your income statement (did I profit or lose?), balance sheet (what do I own and owe?) and cash flows statement (money coming in to your entity and then money going out of your entity).
- Prepare your taxes for your business to follow all relevant rules and regulations which are apply to your business.
- Provide budgeting and forecasting help. Budgeting and forecasting will assist you to analyze future planned spending and projecting what you could receive in income.
- Learnings based on financial data and help with business planning.
- Confirm accuracy by doing an audit of your financial report.
In this way if bookkeeping lays the brick for your house, accounting is the architect. When you make a small business accounting is the structure of your finances of your business. It also help to summarize the meaning behind the numbers so you can see the true condition of your business’s financial position and understand and plan what is possible in the future.
Bookkeeping vs Accounting: What is the Big Difference?
This two services are related to each other but they serve different things in financial world. Here is a table that shows bookkeeping vs accounting
| Feature | Bookkeeping | Accounting |
| Typical Tasks | Data entry, managing receipts and invoices | Creating financial reports, strategy, tax filing |
| Main Focus | Recording day to day financial transactions | Analyzing and interpreting the financial data |
| Purpose | Ensuring accuracy and completeness | Providing insights and ensuring compliance |
| Tools | QuickBooks, Xero, spreadsheets | Accounting software, financial models |
Here we can write bookkeeping vs accounting, our intent is not about one is wrong and another one is right. The comparison of bookkeeping vs accounting is a simple way to show that both have an important role. When you are discussing your business finances.
Do You Need Both for Your Business?
Yes, you are setting a small business and run this smoothly and grow with success when you need both accounting and bookkeeping. At the time when you start your business you can do bookkeeping by yourself but when your business grow you want a accounting professional for preserve the accuracy and provide a unique and strategic vision for your growing business.
Here is how both theme are fit:
- Bookkeeper store all the day to day transactions without hiding a single transaction which are help to keep you books current.
- Accountant use this data to create financial reports which are help to summarise the financial status in the front of investors and stakeholders and track tax liabilities also help in creating future plan for your business.
By understanding the bookkeeping vs accounting you will make better decisions to hire right professionals at the right time for your business.
In Simple Terms
Bookkeeping is a way to track what happened in your business finances and accounting is understanding what those numbers say about your business financial status and what to do next for your business financial growth.
When you are comparing the bookkeeping vs accounting it is necessary to understand that you are mainly looking at the two sides of the same financial coin. When we can define bookkeeping and accounting in simple terms one is used to store your financial data, which is called bookkeeping and one is used to make the decisions for your business growt,h which is called accounting.
Tips For Managing Both
Here we can write some tips for small business owners to manage both accounting and bookkeeping:
- Separate the business finances and personal finances
- Set a time every week for a financial review
- Use software to automate the routine tasks
- Do not wait for the tax season deadline to get your books organized
- When your books have error, do not avoid getting help from a professional
Conclusion
These both are important for every small business owner and it is necessary to understand that bookkeeping and accounting are two different process. While bookkeeping and accounting manage two different financial fields. These are linked to the business process to support financial management.
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