Bookkeeping and accounting are often used interchangeably, but they have certain key differences that every business owner should know about. In brief, accounting is the process of recording, analyzing, interpreting, and presenting financial information. On the other hand, bookkeeping is recording a business’s financial records organized and up-to-date.
While both terms are interconnected and important for any business or company, they serve different purposes and have varying levels of complexity. If you own a business and find it difficult to keep up with your finances, you can hire CPA in Bluffton, SC. A professional will ensure there are no discrepancies that can cost you money.
Key differences between bookkeeping and accounting
The data you receive through bookkeeping is insufficient to make financial decisions and predictions about the company. While it provides vital information about the company’s transactions, decision-making requires a broader range of data.
Your company’s finance department can make important decisions with the help of accounting data. This data gives you insights into the financial health and performance of the company.
- Generating financial statements.
The generation of financial statements is typically not a part of the bookkeeping process itself. Bookkeeping is concerned with recording financial data within a business, including sales, purchases, receipts, and payments, and organizing them systematically.
Financial statements are generated in the accounting process. The data is concerned with the company’s financial performance, health, and cash flows. The statements prepared during the accounting processes are important for communicating with stakeholders, including investors, creditors, etc.
Bookkeeping is concerned with the recording and organization of data, but it does not involve analysis which leads to important decision-making. The information derived from bookkeeping is further used for analysis in other processes.
An analysis is typically the core function of accounting. Accounting professionals use the recorded data for various types of analysis to help gain a deeper understanding of the company’s finances. The insights from analysis help in budget planning, performance improvement, and risk management.
- Financial position.
As you can already guess, bookkeeping does not actually show the company’s financial position. It is only an organizing tool. On the other hand, accounting helps business owners understand their financial position in the market. Accounting goes beyond bookkeeping and provides a comprehensive understanding of your business’s finances.
- Level of learning.
Bookkeeping can usually be done by minimally trained individuals as it does not require a high level of learning. However, good accounting requires a valid college degree, certifications, and years of experience working in the field.