When most people think about bookkeeping and accounting, they find it hard to figure out the distinction between the two of them. While accountants and bookkeepers share common goals, they are able to support the business in various stages of finance. Bookkeeping is more administrative and transactional, concerned with recording financial transactions. On the other hand, accounting is more subjective, it gives you insights into the business’s financial health according to the bookkeeping information. Read on to learn more about the differences between accounting and bookkeeping!
The Function Of Book Keeping
Bookkeeping is the process where you record the daily transactions in a consistent way. It is a key component of amassing the financial information that is necessary to run a successful business. Bookkeeping consists of:
- Posting debits and credits
- Recording financial transactions
- Producing invoices
- Maintaining and balancing subsidiaries, historical accounts, and general ledgers
- Preparing financial statements
- Completing payroll
Keeping a general ledger is one of the main parts of bookkeeping. A general ledger is simply a basic document where the bookkeeper will record the amounts received from expense and sale receipts. This is also known as posting. When more sales are completed, the more often the ledger will be posted. A ledger can be created using a computer spreadsheet, specialized software, or simply a lined sheet of paper. The complexity of the bookkeeping system you have will depend on the size of the business you run and the number of transactions that are completed every day, week, and month. All the purchases and sales that are made by the business have to be recorded in the ledger. Certain items will require supporting documents as well.
The Function Of Accounting
Accounting is a high-level process that makes use of financial data that is compiled by the bookkeeper or business owner. It is used to produce financial models for you to see. The accounting process is more subjective than bookkeeping, which is mostly transactional. Accounting is made up of:
- Reviewing company financial statements
- Preparing adjusting entries
- Completing income tax returns
- Helping the business owner to understand the impact of financial decisions
- Analyzing costs of operations
An important part of the accounting process is looking through and analyzing the financial reports to allow you to make business decisions. You will get to have a better understanding of your actual profitability and the awareness of cash flow for your business. Accounting will help to transform this information from the general ledger into great insights that show the bigger picture of the business and the path which the company is taking. Business owners will need accountants to help them with analyzing their financial position, forecasting, strategic tax planning, and tax filing.
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