Most people would be hard-pressed to explain the difference between bookkeeping and accounting but you’re not most people: you’re a small business owner! Understanding the difference between the two is an essential part of your success, as is the realization that they share one common goal: to provide clarity about your finances.
Bookkeeping is the recording of your daily transactions in a consistent way; accounting makes sense of these transactions and translates them into bigger-picture information about how your business is doing.
Bookkeeping is comprised of:
· Recording financial transactions (daily sales, expenses, etc.)
· Posting debits and credits in your double-entry system
· Producing invoices
· Maintaining and balancing your general ledger and your bank accounts
· Completing payroll
Confused about what you need to record and keep track of while keeping the books? The IRS has a handy list.
Accounting is comprised of:
· Recording expenses that have occurred but haven’t yet been recorded in your bookkeeping system (adjusting entries)
· Preparing company financial statements
· Analyzing the costs of operations
· Completing income tax returns
· Helping business owners understand the impact of financial decisions
Accounting brings key financial indicators together in reports. These reports help you understand how actually profitable your business is and how cash is flowing through your business.
This Quickbooks blog post helps small business owners decide whether they need a bookkeeper or an accountant, and how to choose the best professionals.
The Bottom Line:
A successful marriage between accurate bookkeeping and insightful accounting will contribute to your long-term financial success. Whether you learn to manage your finances on your own or hire a professional, investing time into both of these disciplines will help your business grow.