Bookkeeping vs Accounting: Which One Do You Need?

When running a business, keeping track of your finances is essential. But what’s the difference between bookkeeping & accounting? And which one do you need for your business? Here’s a closer look at the two terms- bookkeeping vs accounting and how they can help you manage your money.

What Is Bookkeeping & Accounting?

Some people confuse the terms bookkeeping & accounting. Let’s see the difference bookkeeping vs accounting.

Bookkeeping:

It focuses on recording and organizing financial data. Any person can do these services with basic knowledge of accounting.

Accounting:

They interpreted, classified, and summarized financial data to prepare financial statements and reports. This information is then used by businesses to make decisions about how to allocate their resources. However, accounting services require advanced knowledge in accounting and managerial skills.

Purposes of Bookkeeping vs Accounting

Here are some of the purposes of bookkeeping:

Record Business Transactions:

Bookkeeping is essential for recording all of the financial transactions made by a business. You can use this information to track a company’s financial health and make informed decisions about where to allocate resources.

Track Business Performance:

You can also use bookkeeping to track the performance of a business over time. You can use this information to identify trends and make changes to improve the efficiency and profitability of a business.

Organizing Business Licenses:

Another purpose of bookkeeping is to keep track of the licenses and permits required by a business. You can use this information to ensure that a company complies with applicable laws and regulations.

Compliance and Processing of Business Permits:

You can also use bookkeeping to track a business’s compliance with government regulations. You can use this information to ensure that a company operates legally and safely.

Aid in Processing Tax Returns:

You can also use bookkeeping to prepare tax returns. This information can ensure that a business is accurate in its filings and minimize the amount of taxes owed.

Payroll Processing:

You can also use bookkeeping to process payroll. You can use this information to ensure that employees are paid accurately and on time.

Now that we know what bookkeeping is, let’s take a look at the purpose of accounting:

Analyze Business Performance:

One of the essential purposes of accounting is to analyze a business’s financial data and make decisions about improving performance. You can use this information to identify trends, assess risks, and make changes to improve the efficiency and profitability of a business.

Budgeting and Planning:

Another essential purpose of accounting is to help businesses plan for the future. You can use this information to create budgets and plan the future.

Financial Reporting:

Another purpose of accounting is to prepare financial statements and reports. This information can be used by businesses to make decisions about how to allocate their resources.

Tax Planning:

Another essential purpose of accounting is to help businesses plan for their taxes. It can use this information to minimize the amount of taxes owed.

Auditing:

Another essential purpose of accounting is to audit financial statements. It can use this information to ensure that a business is accurate in its filings and make sure that it is operating legally and safely.

How Bookkeeping & Accounting Are Related

Now that we know the purpose of bookkeeping and accounting, let’s take a look at how they are related:

Tracking Financial Data:

Both bookkeeping and accounting involve tracking the financial data of a business. It can use this information to make decisions about how to allocate resources.

Filing Tax Returns:

It can use both bookkeeping and accounting to prepare tax returns. This information can ensure that a business is accurate in its filings and minimize the amount of taxes owed.

Making Financial Statements:

It can use both bookkeeping and accounting to prepare financial statements. This information can be used by businesses to make decisions about how to allocate their resources.

Recording Business Transactions:

Both bookkeeping and accounting involve recording business transactions. It can use this information to ensure that a business operates legally and safely.

Requires Accounting Knowledge:

Bookkeeping requires knowledge of accounting to be done correctly. This is because bookkeeping is used to track a business’s financial data and ensure that it is accurate.

The Key Differences Between Bookkeeping & Accounting

Now that we know the purpose of bookkeeping and accounting and how they are related, let’s take a look at the critical differences between them:

1. Skills:

Bookkeeping requires basic math skills and knowledge of accounting. Accounting requires more advanced math skills and knowledge of financial statements.

2. Education:

Bookkeepers typically have a high school diploma or equivalent. Accountants usually have a bachelor’s degree in accounting or a related field.

3. Job Duties:

Bookkeepers typically record financial transactions and prepare financial statements. Accountants typically analyze financial data and make recommendations about improving business performance.

4. Certification:

Bookkeepers are not required to be certified. Accountants are typically licensed by the American Institute of Certified Public Accountants (AICPA).

5. Salary:

Bookkeepers typically earn a median salary of $40,000 per year. Accountants usually earn a median salary of $67,000 per year.

6. Extensive Work:

Bookkeeping is typically less extensive than accounting. Accounting generally is more extensive than bookkeeping.

Which One Do You Need For Your Business? Bookkeeping vs Accounting

Now that we know the purpose of bookkeeping and accounting and the key differences between them, you might be wondering which one you need for your business. The answer depends on a few factors, such as the size of your business, the complexity of your financial transactions, and your budget.

Size of Your Business:

If you have a small business, bookkeeping might be all you need. You might need bookkeeping and accounting services if you have a more significant business.

The complexity of Your Financial Transactions:

If your financial transactions are simple, bookkeeping might be all you need. You might need both bookkeeping and accounting services if your financial transactions are complex.

Budget:

If you have a limited budget, bookkeeping might be all you need. Bookkeeping can help you track your finances and prepare tax returns. You might want to consider bookkeeping and accounting services if you have a larger budget.

Conclusion

Now that you know the difference between bookkeeping & accounting, you can decide which one is right for your business. If you need help deciding, or if you need help with bookkeeping vs accounting, give us a call today! We would be happy to assist you.