Bookkeeping and accounting have many similarities that may lead you to struggle with differentiating between them. They are both essential functions in managing the financial aspects of your business, however, they have several differences that set them apart.
In this article, we’ll take you through the difference between bookkeeping and accounting to provide a clear overview of why pursuing both will benefit your small business.
What is Bookkeeping?
Generally, bookkeeping refers to recording your business’s financial data and the way you organise this. It’s an administrative task that helps your business to have a consistent and visible record of financial information as it occurs, ensuring you can keep track of your finances. Some common types of bookkeeping include;
- Receipts
- Bills
- Invoicing
- Payroll
- Recording of business transactions
- Preparation of financial statements
Priorities of Bookkeeping
The amount of time poured into your company’s bookkeeping will depend on the size of your business, with small businesses having to record less financial data than enterprises. However, all businesses will need a general ledger, a vital component of all bookkeeping practices.
With a general ledger, you’ll record the specific amounts from sales and expenses to provide an overview of your company’s financial performance. At this stage, it’s not about analysing your findings but just keeping a record of them in your general ledger.
What is Accounting?
While your findings taken from bookkeeping will influence your accounting, it’s a different activity. With accounting, your business will comply with ATO obligations, but when taken a step further can gain insight into performance with a more objective approach that can help you make better financial decisions in the future. As a small business, essential accounting duties will apply to you, such as;
- Tax returns
- Financial statements and reports
- Audits
Non-essential, but highly valuable outcomes from good accounting practices will include the following;
- Budgets
- Analysis of business and financial performance
Priorities of Accounting
You’ll use your bookkeeping documentation, such as the general ledger, as the foundation for accounting practices. You can then look to produce financial reports and financial models. Ultimately, the aim is to determine your business’s financial health, evaluate performance, clarify your cash flow and streamline financial decision making.
The Fine Line of Accounting and Bookkeeping
Bookkeeping and accounting provide your small business with excellent ways to improve your company’s financial health. While bookkeeping focuses on organisational elements and recording business finances as they occur, accounting hones in on these findings, allowing you to take the reigns of your company’s finances and analyse your recordings to continue growing your business.
Business owners choose to hire bookkeepers or accountants to fulfil a few or all of the above functions. Either way, it is important to form a strategic plan regarding accurate record keeping, tax filing and forecasting functions of your business.
Need Help With Your Business’s Finances? We Can Help
From organisation to accurate recording and filing taxes, many elements come under handling your small business’s financial health. Contact YBM today to learn how we can help simplify this process.