Bookkeeping is often confused with accounting and people consider that it is used as an alternative and we can use both the terms for each other. However, the fact is that both the terms have their own meaning. Although both the terms share common goals, they support the business at different stages of the financial cycle. It is important to know the difference between the two terms when you own a business.
In this article, we will understand some of the common differences between bookkeeping and accounting. If you are in Pasadena, then you can consult any expert in bookkeeping in Pasadena, MD where you can get all the information about the difference between bookkeeping and accounting.
What are the Key Differences Between Bookkeeping and Accounting?
Bookkeeping includes the recording and categorizing of daily payments and income. It tracks daily financial activities which is important at the later stages. There is also inclusion of activities that include sending customers invoices and recording the payments received. It conducts bank reconciliations every month while generating monthly financial statements. There is processing of payroll, preparation of the books for accountants and also providing year-end financials and tax documents to the accountant.
On the other hand, accounting involves preparation of adjusting entries, analysis of the cost of operations and other such duties. It also helps the business owners to make informed decisions regarding business finances, assess the financial health and make financial forecasts, perform audits and also help in filing tax returns, tax planning and providing tax advisory. Thus, these are basic differences in the tasks of bookkeeping and accounting.
What are the Functions of Bookkeeping that Fits into Accounting?
Bookkeeping is a process that involves recording of daily transactions. It seems to be a key component to gain financial information which is required to run a successful business. It comprises various functions such as recording financial transactions, posting debits and credits, producing invoices, preparation of financial statements, completing payroll, and maintaining and balancing subsidiaries, general ledgers and historical accounts.
The main component of bookkeeping is to maintain a general ledger which is a basic document where a bookkeeper records the amounts from sales and expenses. So, with the basic functions of bookkeeping we can understand that it performs the important function which will later help in the accounting functions.
The transactions that are recorded in the bookkeeping later helps in making the foundation of the accounting. Therefore, it is an important part of the accounting services.
What are the Functions of Accounting?
Accounting involves a high-end process that uses various financial data from the bookkeeping to produce a financial model. It is a very subjective process than bookkeeping in which there are involvements of various transactions. The main functions of accounting includes preparing, adjusting entries, reviewing company financial transactions, analyzing cost of operations, and completing income tax returns.
The accounting services help the business owners in understanding the impact of financial decisions. Accounting involves the important process of analyzing the financial reports which will help in making business decisions. Thus, it provides a clear understanding about the general profitability of the company and the awareness of the cash flow in the business.
It turns the information from the bookkeeping into insights that reveals a greater picture of the business and the progress of the company. Thus, both these services are important for the business to know the financial health of the company.
Thus, organized financial records with proper balanced finances produced by the bookkeeper with smart financial strategies by the accountant will contribute to the success of the business.