What is the Difference between Accounting and Bookkeeping?

What is the Difference between Accounting and Bookkeeping?

Accounting vs Bookkeeping

Without knowledge of the differences between accounting and bookkeeping, these two terminologies have been mistaken to mean the same thing.

First, the meaning of the two terms sets each apart though they work hand in hand (both of them are very essential in a business).

Differences between Accounting and Bookkeeping

Some major differences between Accounting and Bookkeeping are:

 1- Definition

As said earlier, the definition of the two is different.

Bookkeeping is the activity of keeping financial records of a business while accounting is the process of summarizing the financial records explaining the use of the transaction that was carried out.

 2- Decision

The management of the business is the one which is responsible for making decisions and they must be careful for they affect the entire business and everyone concerned (for example workers).

The management can use the data given by an accountant to make these critical decisions but they can’t use the data obtained from bookkeeping.

This is because by using obtained from accounting, the management is able to gauge the financial situation of the business.

 3- Purpose

The main purpose of bookkeeping is to have systematic transaction records while on the other hand, the main purpose of accounting is to scope the financial situation of the business.

 4- Skills

A bookkeeper (the person who offers bookkeeping services) does not require any special skills while an accountant (the person offers accounting services) does require to be skilled in accounting.

 5- Analysis

There is no analysis required on bookkeeping unlike in accounting.

In order for an account to produce a report, he must analyze the bookkeeping to summarize all the transactions recorded.

 6- Financial Reports

Financial reports are made during the process of accounting but they not prepared in bookkeeping process.

While there are differences between the two, they are “twins”. In order for an accountant to make a report, he needs the data from a bookkeeper (see where the “twin-like” comes in?)

Well, there is a purpose for carrying out the bookkeeping and accounting. Here are

The Importance of Accounting and Bookkeeping Services

Accounting and Bookkeeping Services both are very essential to run the business whether small or large successfully. Some basic importance of accounting and bookkeeping services are given below:

 1- Cash Flow Management

This is a very critical environment for a business.

Bookkeeping and accounting help to make sure invoices are being followed up payments for suppliers are done on time (this is very essential in maintaining a healthy relationship with your suppliers) and also keeps you updated about the expenditure and earning of the business.

This makes managing the business finances easy, right?

It also acts as an evidence/referral in the future if the need arises.

 2- Taxation

Filing a tax return can be a real nightmare if you don’t have proper systematic records of your transactions. This because you will have to kill your brain trying to remember all the transactions and expenses you business has transacted throughout the year.

But with a proper systematic bookkeeping and well-balanced sheets, this will be just a walk in the park.

 3- Investors

With bookkeeping and accounting services, giving a report to your investors on the financial stators of the company is easy for all the data is easy to find from the books.

 4- Planning

When planning for your business, there needs to be a consideration of the amount of capital available, for example, expanding the business.

To know the business’s financial situation is easy due to bookkeeping and accounting services for all that is needed is a well-balanced sheet.

With this, you won’t only know the financial situation of the business but also the path the business is following financially.

 5- Law

The law states for every business whether small or big, an audit must be carried out at least once a year.

Bookkeeping helps in keeping the financial records organized properly and easy to retrieve during the auditing.

With all those benefits, you need to remember that accounting is still important even if your business is small or just starting your business. Here are some tips on getting that business on the right track.

Small Business Accounting

Before launching your business, you have a goal to achieve, right?

This is where the accounting comes in because it will be of great help to achieve that goal. The following are steps to follow so as to run your business smoothly.

 1- Bank Account

The important thing you need to think about after registering your business is where your money will be stored.

If you are a sole proprietor, you can decide to be storing your business money to your personal account.

Tip: Even though you can use your personal account to store your business money, it is recommended not to for this will give you a hard time in filing tax returns. The best option is to have a separate business account from your own bank account.

 2- Expenses

You should track every expense in your business by having records of money spent.

 3- Bookkeeping for Small Business

You should create a bookkeeping system to help your record every cash transaction. You can decide to do the bookkeeping yourself or hire a bookkeeper. Nowadays most of the companies prefer to hire Outsourced Bookkeeping Services from any professional CPA firm.

 4- Work Along with a CPA (Chartered Professional Accountant)

They will help you in providing financial reports on your business which will be of great to reflect your business’s financial situation.

 5- Payment method

You will need to decide the method that you will be paid (through online or in person).

The best option to go with is to go with both methods.

 6- Pay Roll

You will need to set up a payroll system since you will find hiring people and independent contractors as your business grows.

Tip: Never mix up your employees with independent contractors in the payroll system. This will attract penalty from IRS

 7- Taxation

You must determine your tax obligations to make sure your business abides by the law.

 8- Gross Margin

In order to keep your business alive, you will need to be on top your gross margin.

In order to calculate your gross margin, you will have to calculate your cost of goods sold (The direct cost incurred by the business in producing goods or services.

 9- Keep Growing Your Business

Do not let your business be the same since you started it. Always look forward to growing it as you go by.

Starting and running a business can be overwhelming but you need to be patient with it and truly devoted to it.  

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