What Is the Difference Between Bookkeeping and Accounting?
Learn the difference between bookkeeping and accounting and what Edmonton small businesses should know about each service.
Andrew Kim
10/6/20263 min read
What Is the Difference Between Bookkeeping and Accounting?
Small business owners often use the terms bookkeeping and accounting interchangeably, but they are not exactly the same thing.
Both involve a business's financial information, but bookkeeping generally focuses on maintaining financial records, while accounting involves analyzing and interpreting those records.
Understanding the difference can help small business owners decide what type of financial support they need.
What Is Bookkeeping?
Bookkeeping is the process of recording and organizing a business's financial transactions.
A bookkeeper may handle tasks such as:
Recording income and expenses
Categorizing transactions
Reconciling bank and credit card accounts
Organizing financial records
Recording sales and purchases
Maintaining accounts payable and receivable records
Preparing regular financial reports
The goal of bookkeeping is to keep the business's financial records accurate, organized, and up to date.
For many small businesses, bookkeeping is performed on a monthly basis.
What Is Accounting?
Accounting generally involves using financial information to analyze a business and support financial decision-making.
Depending on the business and the professional providing the service, accounting may include:
Financial analysis
Tax planning
Tax preparation
Financial forecasting
Budgeting
Business advice
Reviewing financial statements
Accounting can therefore go beyond recording transactions and focus more on what the financial information means for the business.
Bookkeeping Comes First
Accurate accounting depends on accurate financial records.
If transactions have not been recorded properly or accounts have not been reconciled, financial reports may not provide a reliable picture of the business.
This is why bookkeeping is an important foundation for accounting and tax work.
Keeping the books organized throughout the year can also make it easier to provide financial information to an accountant or tax professional when needed.
Do Small Businesses Need Both?
Not every small business needs the same level of financial support.
A business with relatively few transactions may be able to handle basic bookkeeping itself using software such as QuickBooks Online.
As the business grows, however, bookkeeping can become more time-consuming. Some owners choose to outsource their bookkeeping while continuing to work with an accountant or CPA for tax and accounting services.
This can allow each professional to focus on the type of work they are best suited to provide.
What Does a Bookkeeper Do for a Small Business?
A bookkeeper can take care of the ongoing work required to keep financial records organized.
For example, a small business may provide its bank and credit card information and receipts, while the bookkeeper handles transaction categorization, reconciliations, and monthly financial reports.
This gives the business owner a more current view of the company's financial position without having to spend hours maintaining the books themselves.
What Does a CPA Do?
A CPA may provide services that go beyond routine bookkeeping, including corporate and personal tax services, tax planning, financial reporting, assurance services, and other accounting advice.
The exact services offered depend on the CPA and the needs of the business.
For many small businesses, a bookkeeper and CPA can work together. The bookkeeper maintains the day-to-day records, while the CPA handles tax and other accounting matters that require their expertise.
Can a Bookkeeper Do Taxes?
Bookkeeping and tax preparation are separate areas of work.
A bookkeeper can maintain organized financial records and prepare reports that contain information needed for tax preparation. However, business owners should understand what tax services their particular bookkeeper provides and whether a CPA or other tax professional should handle their tax return.
Having accurate books throughout the year can make the tax process much easier regardless of who prepares the return.
Why Accurate Bookkeeping Matters
Good bookkeeping gives a business owner reliable financial information.
When your books are current, you can more easily determine whether your business is profitable, monitor expenses, identify changes in revenue, and make informed business decisions.
It can also reduce the stress of trying to organize an entire year's transactions when tax season arrives.
Bookkeeping and Accounting in Edmonton
Edmonton small businesses have many different options when it comes to managing their financial records.
Some owners handle their own bookkeeping, while others outsource the work to a professional bookkeeper. Businesses may also work with a CPA for tax preparation, accounting, and other professional services.
The right approach depends on the size and complexity of the business, transaction volume, and the owner's available time.
YEG Bookkeeping provides bookkeeping services for small businesses in Edmonton and surrounding communities, including monthly bookkeeping, financial reporting, and catch-up and clean-up bookkeeping using QuickBooks Online.
Whether you handle your books yourself or work with a professional, keeping accurate financial records is an important part of running a well-organized business.
