Bookkeeping and accounting are both essential financial business functions, yet many people are unclear on the distinction between the two, and often confuse them to be the same thing. While both bookkeeping and accounting deal with important financial data, there are clear differences between their definitions, functions, and the professional roles.
So, what’s the difference? The experts here at 3rd Arm Admin explore and discern the blurred lines between bookkeeping and accounting:
Bookkeeping, by definition, is “the activity or occupation of keeping records of the financial affairs of a business,” while accounting is “the process or work of keeping financial accounts.” More specifically, bookkeeping is mainly concerned with accurate recording and measuring of financial transactions within a business (this is more the day to day transactions), while accounting deals with the in-depth analysis and interpretation of these transactions.
Many people confuse bookkeeping with accounting because the work involved does often overlap. However, they are both separate – yet still connected – practices because their specific functions within a business are different. The most successful businesses I know have both a Bookkeeper and an Accountant working closely together.
Bookkeeping exists to ensure all financial transactions within a business and their records are organised on a regular basis in systematic, consistent, and chronological order. The bookkeeping department will keep up to date and accurate records including debtors, creditors, bank recs, general ledger accounts, cashflow, payroll and any other systems used by the business for recording their financial transactions. This also includes compliance such as GST, PAYE & FBT and in addition advisory services and reports for day to day transactions and processes and procedures.
Accounting, on the other hand, is the process of using and interpreting the information collected in bookkeeping to produce financial plans for the business. It is often considered the next step after bookkeeping and does require you to have up to date and accurate bookkeeping. The accounting department handles things such as preparing financial statements, filing taxes and returns, and communicating relevant insights to the appropriate authorities while also often including higher level advisory services
A bookkeeper’s main job is to maintain the general ledger – that is, the document that holds records of sales and expenses. The complexity of this document depends on a business’ size, whether it includes stock, they use foreign currency and the number of transactions it completes on a daily, weekly or monthly basis. Without bookkeepers, business owners would spend too much time and energy poring over their transactions, which can slow and stagnate business growth and often ends up providing inaccurate information due to inaccurate coding.
Accountants are vital in a business’ decision-making process and their advice is vital especially when your business is experiencing growth, if you are looking to exit, or have complex cash requirements. They are able to gauge the financial situation (providing you have a good bookkeeper to keep your accounts up to date) and provide the data that can guide these decisions. Without accountants, business owners are in danger of making the wrong financial decisions, which is very costly in the long run.
Here at 3rd Arm Admin, we are proud to provide top-quality bookkeeping services that will help your business grow. When your books are up to date and accurate and your financial records are well-organised, your business (and accountant) are empowered to create better financial strategies, which leads to long-term success.
Let us take bookkeeping, payroll and admin tasks off your hands. Contact us today at 04 232 9199 and ask us how we can help!