Bookkeeping vs accounting
Bookkeeping records a business's transactions day to day; accounting uses those records to adjust, report, file taxes and advise.
In short
- Bookkeeping records and reconciles transactions; accounting interprets and reports on them.
- The two meet at month-end close, where records are completed, adjusted and reviewed.
- Most bookkeeping time goes to capturing and coding receipts and bills.
Bookkeeping versus accounting is the difference between recording and interpreting. Bookkeeping captures every transaction and keeps the ledger accurate. Accounting takes those records, adjusts them, turns them into financial statements and tax returns, and explains what they mean for the business.
What bookkeeping covers
- Collecting receipts, bills and invoices
- Coding each transaction to an account in the chart of accounts
- Posting entries to the general ledger
- Reconciling bank and card accounts
- Keeping accounts payable and receivable up to date
What accounting covers
- Adjusting entries such as accruals, prepaid expenses and depreciation
- Financial statements: income statement, balance sheet and cash flow
- Tax returns and tax planning
- Analysis and advice: margins, budgets, pricing and financing
- Reviews and audits, where an outside accountant is required
Where they meet
The two meet at month-end close. The bookkeeper makes sure every transaction is in and reconciled; the accountant reviews, adjusts and signs off. In a small business, the owner or an office manager often keeps the books and an outside accountant handles year end. Accountants often hold a professional designation such as CPA; bookkeepers may or may not.
Where software fits
Most bookkeeping hours go to capture: finding receipts, typing them in and coding them. Smartbills takes on that part. It reads each receipt and bill, codes it the way the vendor was coded before and posts it to QuickBooks, Xero, Sage or NetSuite, which remain the books your accountant works in.
Worked example
A renovation contractor's year
A renovation contractor's office manager spends about six hours a month entering 180 receipts and supplier bills and reconciling two bank accounts and a card. At year end, the outside accountant books depreciation on a new truck, accrues December's unpaid invoices, prepares the financial statements and files the corporate tax return.