Differences Between Accounting and Bookkeeping

Picking up the skills of bookkeeping and accounting can be time-consuming and difficult. Understanding the difference can help you focus your spending on what is most necessary, what you can do yourself, and what Decimal can help you with. Here, we’ve laid out the differences between bookkeeping and accounting so you can get back to your business and do the things you enjoy.

Starting your own business often starts with a passion. Whether it’s opening up your own beauty salon or opening up a clothing store, your business is yours and you should be able to work with what you love. Having the plan to be your own boss is great, however, we still have the finances to worry about - we want to make sure that we can make a profit from our dreams and goals! While starting and managing your business, there are a million things on your plate to keep you busy.

While the lines between bookkeeping and accounting are starting to blur,  both are essential financial functions and there are key differences that are important for any start-up or small business to be aware of. To put it simply, bookkeeping is the record-keeping that accountants utilize to analyze and record the financial results of the company. 

Bookkeeping Basics

The work of bookkeeping professionals is vital because it can affect so many different aspects of the business. 

Bookkeeping organizes a company’s data by keeping records of the financial affairs of a business. Every business needs to practice bookkeeping in order for leaders, accountants, lenders, and/or analysts to make future business and financial decisions. Bookkeepers typically do not make the financial decisions for the business but their work is essential for the decision-makers overseeing the business and accounting. Bookkeepers collect and organize record daily financial transactions. Because of the need for accuracy by the bookkeepers, an accountant often oversees their work. 

As we said above, the work of these bookkeeping professionals is so vital because it can affect so many different aspects of the business. Whether it is preparing tax returns for the Internal Revenue Service (IRS) and/or state and local taxing authorities, budgeting for the next year, presenting information to investors, or simply wanting to stay organized as a business owner, bookkeeping is an essential function for any business. 

Accounting

Accounting, compared to bookkeeping, takes a more directive role when it comes to finances. While bookkeeping keeps track of all financial transactions, accounting is where you take all this financial information and apply it to your business and make decisions accordingly. Accountants prepare tax documents and evaluate the financial standing of a business. Accountants also apply their skills to help the company manage its business - this can be, for example, by analyzing trends (increasing revenues or unusual expenses) or determining if one product line of a business is more profitable than another.  

This analytical process is an important part of accounting and is why extensive training and schooling are required to become a certified public accountant (CPA).  For a small business that has an employee with some accounting experience, it may be possible to handle the accounting functions in-house. 

Decimal

Where does Decimal fit into this you might ask? Decimal helps address accounting operations by alleviating manual activities and leaning on automation to handle the activities. We find the best technology for your business needs and build better processes that align with your overall business objectives, not just what makes an accountant’s life easier. Contact us to learn more about how Decimal can improve your accounting operations! 

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