You’ve just opened up your new business and are determined to get your finances all sorted out. The problem is, you’re confused about bookkeeping and accounting.
You’re not alone. Many small business owners often get confused between these two essential business financial processes. Do you need to do both? Yes. What’s the difference between the two? Read on to find out.
Understanding Accounting
Accounting is the reporting, analysis, and interpretation of your business’s financial performance. Unlike bookkeeping, accounting provides an insightful and more detailed explanation of the financial health of your company. It helps you make sound financial decisions and assists you in keeping your tax returns up-to-date.
In accounting, you use the information recorded through bookkeeping to prepare your financial statements. This includes your cash flow statement, income statement, and balance sheets. In addition, a good accounting process will help you pinpoint any incurred costs that may not have been recorded, allowing you to make the necessary adjustments and ensures you got an accurate assessment of your finances.
Understanding Bookkeeping
Bookkeeping is the initial step in your accounting process. It lays the foundation on which your accounting assessments will be based on.
In bookkeeping, you record every financial activity that happens in your business — from your expenses to your profits. This is also the part where you manage your payroll, create invoices and receipts for payments received.
Matching your balances with your bank transactions is part of the bookkeeping. If there are any inconsistencies between your records, you must make bank reconciliation statements to show these discrepancies.
Similarities Between Accounting and Bookkeeping
Both accounting and bookkeeping use your business’s financial data for recording and assessment. They help you stay tax compliant so that you could avoid any penalties.
With advance bookkeeping applications, bookkeeping and accounting tasks may seem to overlap. However, these two processes share the same goal of making sure your company is in good financial standing.
Differences Between Accounting and Bookkeeping
The distinction between accounting and bookkeeping lies in the depth of work that needs to be done for each process and the skills required to do them.
For instance, an accountant is qualified to perform the entire accounting process — including bookkeeping. However, a bookkeeper only records and categorises your business’s financial activities. Furthermore, it’s the accountant’s job to analyse data while a bookkeeper prepares the ledgers that the accountant will analyse. It’s also the accountant’s responsibility to file tax returns.
Do you need help with accounting or bookkeeping? Sutherland Reid & Farrar can help. We offer bookkeeping and accounting services for all types of businesses. We can help with financial statement preparation, bookkeeping, taxation, accounting, BAS/IAS requirements, and Pre 30 June reviews. We also offer two of the most popular cloud accounting software you could use for your growing company.
Call us at 02 6752 9700 or send an email to office@srfpl.com.au for more information on our services.
