Bookkeeping vs. Accounting: You Mean They are Not the Same?

Many small business owners use the terms accounting and bookkeeping interchangeably. Although both are important when it comes to the management of your business finances, there are some key differences between the two functions. It is important that business owners understand each of the roles and how they work together for the success of your company.

Bookkeeping

Bookkeeping is made up of the tasks that are required during the initial phase of the accounting process. It involves a timely and consistent recording of the financial transactions of a business – in chronological order. Bookkeeper duties include:

• Keeping an organized and complete set of books, made up of the general ledger and any sub-ledgers, where financial transactions are posted. 
• Paying suppliers.
• Generating and issuing customer invoices. 
• Logging cash receipts.
• Recording invoices from suppliers.
• Managing petty cash transactions.
• Documenting changes to inventory.
• Keeping all supporting documents related to all business transactions.
• Processing employee payroll.

Bookkeepers must follow specific procedures to keep up with these duties on a regular basis. 

Accounting

The function of accounting includes the detailed process of interpreting, analyzing, reporting, summarizing financial data that has been recorded by a business owner or bookkeeper. Some of the responsibilities of an accountant include:

• Analyzing costs of operations.
• Preparing adjusted entries (or earned revenue/expenses that have yet to be reported by the bookkeeper).
• Creating a company budget.
• Preparing financial statements based on the performance and condition of the company.
• Generating tax returns from financial data.
• Creating management reports.
• Aiding the business owner so he or she can better understand the company’s financial data and any impacts of his or her financial decisions.

The accounting process basically enables a business owner to better understand where a business stands financially and can help to measure a company’s progress in terms of financial success and growth.

By understanding the difference between a bookkeeper and accountant, a business owner can better know when to use which so their business can make the right decisions that lead to long-term success.