Most people struggle to distinguish between bookkeeping and accounting when they try to define the two processes’ differences. While they both serve your company at different points in the financial cycle, bookkeepers and accountants have similar objectives.
The function of bookkeeping
The process of consistently recording daily transactions is known as bookkeeping, and it is a crucial step in obtaining the financial data required to manage a successful company.
- Keeping track of financial transactions
- Debit and credit posting
- Generating invoices
- Preparing financial statements (balance sheet, cash flow statement, and income statement)
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
A bookkeeping system’s complexity is frequently influenced by the size of the company and the volume of daily, weekly, and monthly transactions. Your company must record all sales and purchases in the ledger, and some transactions require accompanying documentation.
The function of accounting
Accounting is a high-level procedure that creates financial models using financial data gathered by a bookkeeper or business owner.
Along with a degree, accountants can get additional training to obtain titles such as Certified Public Accountant (CPA). A CPA can perform audits or attestations as well as provide certified statements on company financials.
Unlike bookkeeping, which is primarily transactional, the accounting process is more subjective.
- Creating adjustment entries (recording expenses that have happened but haven’t been accounted for in the bookkeeping process)
- Examining financial reports of the company
- Examining operational costs
- Completing income tax returns
- Assisting the business owner in understanding the impact of financial decisions
Analyzing financial reports is an important step in corporate decision-making. As a result, you have a greater grasp of your company’s true profitability and cash flow. Accounting transforms data from the general ledger into insights that show the business’s overall picture and the direction it is headed. Accountants are frequently sought out by business owners for assistance with strategic tax planning, financial analysis, forecasting, and tax preparation.
Time is money. Don’t spend it doing your own bookkeeping, if you don’t have bookkeeping background.