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There are many similarities between bookkeeping and accounting.
Both require keeping track of financial information, transactions, and invoices, but these same tasks are done for different reasons.
Let’s discuss how bookkeeping differs from accounting and why both are needed:
What is Bookkeeping?
Bookkeeping is a business’s financial transaction recording, organization, and maintenance. It helps you stay on top of your business’s money game by organizing and keeping tabs on financial transactions. When you’re on the ball with tracking sales, purchases, and expenses, you’ll have accurate records that make it way easier to keep an eye on cash flow and make smart decisions for your business, knowing exactly where you stand.
Countless types of financial transactions are kept in bookkeeping, such as cash receipts, cash payments, sales invoices, purchase invoices, and bank transactions. Ledgers or journals record all financial transactions to provide a record of auditing. Examples of bookkeeping responsibilities are:
- Entering financial transactions into an accounting software system.
- Following up on bank and credit card statements.
- Managing accounts payable and accounts receivable,
- Making financial reports such as balance sheets and income statements.
Every company should have a bookkeeping department because it ensures accurate and well-organized financial records that can be used to reach long-term financial objectives and make wise financial decisions.
Related: How To Do Bookkeeping For a Small Business
What is Accounting?
Accounting aims to assist businesses in making informed decisions by evaluating, analyzing, and communicating financial information. It includes using the financial records produced by bookkeepers to analyze and create reports that help businesses understand their financial health and plan for the future.
Accounting is an important part of business for decision-making, financial planning, and compliance. They help companies determine how their decisions affect their finances and develop plans to improve their monetary performance. Accountants make sure that companies follow the law and maximize their taxes deductions.
Accountants create numerous forms of financial statements to assist companies in understanding their financial health, such as things:
- Income statements show a business’s income and cost over a certain period.
- Balance sheets show a company’s assets, liabilities, and equity at a specific time.
- Cash flow statements show how much money comes into and goes out of a business over a particular time frame.
Businesses can make better financial decisions and achieve their objectives by tracking their income, expenses, assets, liabilities, and equity. Accounting is a key factor of any successful organization, and its value cannot be pointed out.
Which one should you choose for your business?
There are many factors to consider when choosing between bookkeeping and accounting. Think about the size of your business, how complicated your financial involves are, or what your financial goals are.
For small businesses with simple financial operations, bookkeeping can be the best option. It is less expensive than accounting and can be performed by a bookkeeper or a business owner. Larger organizations with advanced financial operations, on the other hand, may require the expertise of an accountant.
Taking into account both the benefits and drawbacks of any choice is also essential. Despite the fact that bookkeeping is less expensive than accounting, it might not offer the amount of financial research that a company requires to make real choices. Bookkeeping is a less expensive way to keep financial records, but accounting provides additional economic analysis.
In the early stages of your small business, it may be suitable to hire a bookkeeper to keep track of your financial records depending on your company’s particular needs and objectives. However, as your company expands and requires sound financial decision-making, it would be wise to hire an accountant or use accounting software to assist in analyzing your financial data. It is highly recommended that you discuss your company’s best course of action with a qualified bookkeeping firm- like K9 Bookkeeping!- to get the best results for your business.
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