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Bookkeeping and accounting – for the uninitiated, they sound pretty similar. And on the surface of things, they do have plenty of similarities. They both deal with financial transactions and reporting, ensure that financial records are accurate, and both work to maintain the financial health of your business. It’s easy to see why these roles cause confusion among many people.

However, that’s where the similarities end. Despite some areas of overlap, bookkeeping and accounting are two quite distinct roles, with different purposes and goals. They are both important parts of managing a business, but there are some very important differences between them, and they are used in different stages of the financial cycle. If you’re not sure whether you need the services of a bookkeeper or an accountant, let’s dive in and find out.

What is bookkeeping?

Bookkeeping is a part of the accounting process, and is related to identifying, measuring and recording financial transactions. Bookkeeping captures the transactions of a business and accurately records them in a consistent way. These may include paper or electronic receipts, contracts, bank statements or online information. A bookkeeper will certify transactions, review accounting records, and update them for each period requiring a financial statement.

The purpose of bookkeeping is to keep the records of all financial transactions systematic and accurate.

What services do bookkeepers provide?

Typically, bookkeepers provide services such as:

• Invoicing
• Payroll
• Recording business transactions
• Posting debits and credits
• Bills and receipts
• Balancing accounts
• Keeping accurate records
• Sorting documents for tax return
• Managing accounting software
• Monitoring bookkeeping policies and procedures
• Verifying expenses and managing approvals

Bookkeepers keep accurate financial records in a systematic manner, make sure bills are entered and paid on time, and that money is received and entered on time, reconcile balance sheet accounts and prepare financial statements. They record the true financial position of a business through a statement of earnings compared to losses on a daily basis.

They track how money goes in and out of a business – how money is spent and how money is earned. A good bookkeeper will keep you financially organised, and they are ideally positioned to do so, as they’re usually sticklers for accuracy!

What is accounting?

Accounting builds upon the bookkeeping process, and summarises, interprets and communicates financial transactions. Accounting usually picks up where bookkeeping leaves off, and produces financial analysis using bookkeeping information.

Accountants report relevant financial information to business owners and investors, and provide advice on developing a business. As a result, relevant people in the business gain a better understanding of cash flow and actual profitability.

What services do accountants provide?

Typically, accounts provide services such as:

• Tax returns and planning
• Reviewing records to analyse the overall health of finances
• Financial analysis and consultation
• Budgets
• Entry adjustments
• Financial statements, reports and forecasts
• Business performance analysis
• Auditing
• Resolution of complex financial reporting issues
• Redesigning business accounting systems to improve efficiency
• Ensuring compliance

Accounting has a much more in-depth and analytical focus, with its primary objective being to examine the financial situation of a company and present this information in usable form to the company directors.

So, what’s the real difference?

There’s quite often an overlap between the functions of a bookkeeper and an accountant – and in smaller businesses, the same person may perform some or all of the duties of both. While they are closely and intricately related, bookkeeping and accounting are entirely different things.

Essentially, bookkeeping records, tracks and identifies the economic and financial operations of a business, while accounting orders, catalogues, reports on, analyses and summaries these financial transactions. Bookkeeping is a branch of accounting which ensures financial records are organised and systematic, while accounting uses this information to gauge a company’s financial health. Bookkeeping is recording, while accounting is analysis and interpretation.

Accounting converts the information retained through bookkeeping into statements that show the path down which the business is progressing. Accountants deal with the big picture, while bookkeepers deal with the details.

Accounting requires analytical skills, whereas bookkeeping requires organisational skills. To make a real-world analogy, you might think of bookkeepers as nurses and accountants as doctors. A nurse would prep a patient for surgery, whereas the doctor would actually perform the surgery.

Bookkeeping is a part of accounting, and creates a base for accounting. It is the mechanical application of accounting principles, and can give business insights based on bookkeeping information.

When carried out properly, bookkeeping perfectly complements the accounting process. Both parts of the process are important for a smoothly-functioning business, and both contribute to long-term success.

If you’d like to speak to someone about the bookkeeping needs of your business, Alexilum Bookkeeping is always happy to help. Go to https://alexilum.com.au/contact-us/