Accounting vs. bookkeeping – What’s the difference?

So you’ve just started a business. Now you’ve run into a big question. What exactly are the differences between accounting vs. bookkeeping? Though bookkeeping and accounting might seem like the same thing, they are actually different. Both involve number crunching – but using various methods and tools. Their goals are different.

Functionally, bookkeeping is more administrative. Accounting covers the bigger financial picture of a small business. Want more insight? We’ll answer the question “what is the difference between bookkeeping and accounting?” below.

Difference between bookkeeping and accounting

In terms of scope, accounting is much wider than bookkeeping. Bookkeeping provides a base for accounting. Let’s better define the two terms, so you have a framework for what each means and how they work together.

What is bookkeeping?

While we covered “what is bookkeeping?” in another post, here’s a quick recap. Bookkeeping involves record-keeping of all small business transactions, posting debits and credits, producing and sending invoices, maintaining ledgers and balancing subsidiaries, and sometimes completing payroll.

It helps you gauge the financial vitality of your business by tracking expenses and revenue.

Bookkeeping duties may include processing, documenting, and reporting:

• Asset records
• Bank transactions
• Bills
• Credit purchases
• Financial transaction reports
• Payroll records
• Purchase orders
• Receipts
• Sales invoices
• Adjustments
• Reconciliations

Bookkeepers may also work with tax preparers and prepare certain financial statements.

The primary tools used in bookkeeping are journals and ledgers. These are basic documents where the amounts from sale and expense receipts are recorded. All of your small business’ sales and purchases should be reported in the ledger.

There are generally two methods used; they include single and double-entry bookkeeping. Many business owners choose to use professional services for their bookkeeping needs—such as enlisting the help of a Block Advisors Bookkeeping expert. Others prefer to handle bookkeeping on their own, perhaps using a DIY bookkeeping software such as Wave.

What is accounting?

Accounting is more analytical than bookkeeping. When you engage in accounting activities, the goal is to summarize financial transactions using bookkeeping data. Then this information is used to aid future business decision-making. Some of the tasks associated with accounting include:

• Analyzing revenues, costs, financial statements, and account balances
• Handling small business taxes
• Preparing financial documents like a profit and loss statement
• Preparing adjusted entries
• Producing financial models
• Understanding and providing big-picture financial advice through financial information

Accounting and bookkeeping go hand in hand

Bookkeeping simply seeks to create a record of the financial state of a business. Accounting leverages bookkeeping records to inform business decisions and take action. For instance, you could use bookkeeping ledgers and journals to glean business insights – which would then be classified as accounting.

So, there’s no ”either/or” when it comes to accounting vs. bookkeeping. Together, they provide a business owner with important financial and tax information. This equips the business owner to better understand their company’s profitability, cash flow, and growth.

Together, we’ve identified that there is a difference between bookkeeping and accounting. Hopefully, now you can see that the terms are closely related and how they work hand in hand.

Get help with small business bookkeeping

If you’re looking for help with managing administrative tasks for your small business, look no further than Block Advisors. In addition to tax preparation, we also offer small business bookkeeping and payroll services. Millions of entrepreneurs trust Block Advisors experts to help them with their year-round business needs.

See how our bookkeeping professionals can help with your bookkeeping needs and answer any questions you may have.

Schedule a free bookkeeping consultation.

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