Maintaining a successful business requires an understanding of its finances. To ensure the financial health of your business, you must understand the difference between bookkeeping and accounting. Both services are related to managing finances, but they serve different purposes. So let’s take a closer look to understand better how they differ.
Bookkeeping vs. Accounting: What’s the Difference?
At first glance, you may think that bookkeeping and accounting are the same, but this isn’t true. Bookkeeping focuses on recording transactions (such as purchases or sales). It involves collecting, organizing, and categorizing data from financial documents such as invoices, bills, receipts, bank statements, etc. This information is then entered into software like QuickBooks to create accurate financial records for your business. The primary purpose of bookkeeping is to keep day-to-day transactions organized so that you can easily access past data when needed.
Accounting takes bookkeeping to the next level by taking all of the data collected through bookkeeping and interpreting it into useful financial information (e.g., profit/loss statements, balance sheets, etc.). The goal of accounting is to use data to make informed decisions about your business’s future success; it involves creating budgets and forecasts while analyzing trends in your industry or market. This also involves a deeper understanding of “generally accepted accounting principles” or “GAAP standards” and methodologies within those GAAP standards that allow your business to utilize these strategies to ensure financial success. This next level of service is invaluable and will help any business owner clarify their finances.
Not all, but some accountants can prepare and file your taxes which is different from bookkeeping and financial reporting. There is a case to be made that keeping your day-to-day bookkeeping and accounting separate from your CPA’s work can protect you from errors. With this approach, you have multiple teams working on your finances while maintaining a checks and balances system within one of your business’s most important areas of operation.
Many small businesses don’t have the resources to hire specialized internal professionals in bookkeeping and accounting. So finding a firm with experienced professionals who can handle both types of work under one roof is crucial. In addition, a reliable firm can help you manage your day-to-day finances while providing sound advice on long-term plans for success––all while ensuring your books are tax-ready for your CPA to file taxes.
Every business should have accurate records of all their transactions and easy-to-read reporting. If you’re looking for help managing your finances effectively and efficiently, schedule a free call with TeKoda Accounting. We’ll become your best financial partner.
