If you ask the average person what the difference is between accounting and bookkeeping the most common response is “the bill.” While both involve recording the financial transactions of the business, they are very different in the scope of what they accomplish.
Bookkeeping is the process of recording the transactions in chronological order. While this process does include some classifying and summarizing the data, it is only the first step in the accounting process.
Accounting dives deeper into the transactions and puts meaning into the numbers. There are four main steps involved in accounting process.
Recording – This step is the same as would be done by a bookkeeper.
Classifying and Summarizing – While Bookkeepers do classify to some extent, accountants have a better understanding of the business and of accounting standards. This allows the accountant to record the transactions with the end purpose in mind (Auditable Financial statements, Tax returns, financial projections, etc.) and thus reduce the time needed to make the financial statements conform to the needed format.
Reporting – This process takes the classified transactions and creates the financial statements. With the accounting software that is available today, most bookkeepers are able to produce basic financial statements such as the balance sheet and the Profit & Loss Statement. Accountants are able to take it to the next level. At the most basic level the accountant provides complied financial statements. These statements must comply with Statements on Standards for Accounting and Review Services. The rules and standards are nationally set and recognized.
Analyzing and Interpreting – Now that you have the numbers, what do they mean? This is where the accountant can provide their knowledge to help management better understand what is actually going on in their business. Understanding how a business can show $100,000 in income but have a negative bank balance; What price should I sell the business; Are we going to be able to keep the doors open; are just a few of the examples of what your accountant can help provide a clearer picture through the analysis and interpretation of the financial statements.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.