Accounting vs Bookkeeping, Know Who Handles What in Your SME

Many business owners use the words accounting and bookkeeping in alternate, but they are not the same. We can say that bookkeeping and accounting work together. But they serve different purposes. Bookkeeping records the daily transactions. And accounting uses this information to understand your business and plan for the future.

If you have a business and are thinking about, “Do I need a bookkeeper or an accountant?”, this guide is for you. We’ll explain both terms in simple language. No jargon, no confusion! By the end, you’ll know exactly what each does and why your business needs both.

What Is Bookkeeping?

Bookkeeping is the foundation of every business’s financial system. It’s the process of recording all your daily money movements.

When you sell something, pay a bill, or make a purchase, your bookkeeper records it. These records become the financial history of your business.

A bookkeeper usually handles:

• Sales invoices and customer payments
• Vendor bills and expenses
• Payroll and employee reimbursements
• Bank and credit card reconciliations
• Petty cash and receipts

Surprisingly, 70% of small businesses don’t have a professional accountant. If you are one of them, your business is at a high risk of losing money. 

Bookkeeping makes sure that your financial data is accurate and up to date. You can’t make smart business decisions without clean books.

Practical Example: 

Let’s say you own a cafe. Your bookkeeper enters each coffee sale, supplier payment, and payroll expense into your accounting software. That data tells you how much profit you’re making each week.

The Anatomy of a Transaction:

When it comes to bookkeeping, understanding basic terms like credit, debit, and general ledger is essential.

• Debit (Dr): An entry on the left side of an account.
• Credit (Cr): An entry on the right side of an account.
• General Ledger (GL): It’s the “Master Record” of every financial transaction that has ever occurred during the life of the business. 

What Is Accounting?

Accounting builds on bookkeeping. Once all transactions are recorded, accounting organizes, reviews, and interprets them.

An accountant analyzes your numbers to understand how your business performs.

Accounting tasks include:

• Helping plan business growth
• Preparing balance sheets and income statements
• Managing budgets and cash flow
• Filing taxes and financial compliance reports
• Advising on cost control and profitability

Where bookkeeping answers “What happened?”, accounting answers “What does it mean?”

Plus, for startups, it’s more than a requirement. According to a WSJ survey, 80% of startups operate without a Chief Financial Officer in the early stage. As a result, you get less control over your company’s financial data.   

Practical Example: 

Let’s put that cafe example again in the picture. Your accountant reviews your café’s books and sees coffee bean costs are rising. They advise adjusting prices or finding a new supplier. Maintaining your budget plus product quality at the same time.

Understanding Basic Accounting Terms:

If you are a business, you must understand these terms to get a deeper analysis of data:

• Assets: Tells you the “Health” of what you own. vs. what you owe.
• Liabilities: Talks about “Health” of what you owe.
• Accounting Equation: It’s the formula $Assets = Liabilities + Equity$ that ensures your business stays in balance.

Key Difference Between Accounting and Bookkeeping

It’s crucial to know the difference between accounts and books. Research shows that companies using both bookkeeping and advisory services reported a 72% increase in revenue in the past 12 months. You must understand the importance before we dive into differences:

In short:

• Bookkeeping records.
• Accounting interprets.
• Bookkeeping looks backwards.
• Accounting looks forward.

Both are essential for a clear financial picture.

Is a Bookkeeper an Accountant?

No! Bookkeepers and accountants work together and play different roles in business records. A bookkeeper ensures that all financial data is correct and up to date. In comparison, an accountant uses this data for reporting and decision making.

Example: Your bookkeeper records your restaurant’s daily sales. Your accountant uses that data to prepare your monthly profit report and help you file taxes.

A bookkeeper tells you where your money went. An accountant tells you what to do next.

Why Businesses Need Both

Even small businesses need both bookkeeping and accounting. Here’s why:

Accurate Financial Records

Bookkeeping gives you clean, organized numbers. Without that, accounting can’t produce reliable reports.

Better Decision Making

You can make better decisions because you can record your profits, losses, and growth potential. You can analyze financial statements early and drive solutions.

Tax and Compliance Support

Bookkeepers track expenses and receipts. Accountants use those details to ensure you pay the right taxes and follow laws.

Time and Cost Savings

Clean bookkeeping reduces the time and cost of accounting work. When your books are organized, accountants spend less time fixing errors.

Bookkeeping vs. Accounting for Small Businesses

Many small business owners think they can skip one or the other. But that’s risky.

Without bookkeeping, you can’t know your true cash flow. Without accounting, you can’t plan or grow wisely.

Here’s how both help:

• Bookkeeping: keeps your financial data ready every day.
• Accounting: turns that data into insight and strategy.

Common Misconceptions About Bookkeeping & Accounting

One of the major misconceptions businesses have is that bookkeeping isn’t necessary for small businesses and startups. Totally wrong! Well, there are a few more myths that we will burst today!

Myth 1:

Accounting and bookkeeping are the same. They sound similar but have different goals. Bookkeeping records data. Accounting analyzes it.

Myth 2:

Software replaces bookkeepers. Tools help, but people keep data accurate. You still need human review and judgment.

How Bookkeeping and Accounting Work Together?

Think of bookkeeping and accounting as two parts of one system.

• The bookkeeper records transactions daily.
• The accountant reviews them monthly or quarterly.

When both sides stay in sync:

• You get reliable reports.
• Tax season becomes easier.
• Business decisions become faster and smarter.

If you have messy books, your accountant spends time cleaning data instead of analyzing it. That’s why accurate bookkeeping saves you money in the long run.

Simple Real World Example of Bookkeeping Vs Accounting

If you run a small restaurant. Your bookkeeper:

• Enters every sale from your POS system
• Records supplier bills for food and beverages
• Tracks staff payroll
• Reconciles bank statements weekly

Your accountant:

• Reviews your financial reports each month
• Calculates profit margins
• Files quarterly tax returns
• Advises you on cash flow and expansion plans

Additionally, both of these help your restaurant to stay profitable and compliant.

Final Wrap Up!

Bookkeeping and accounting work hand in hand. Bookkeeping maintains the accuracy of the record, and accounting gives these records meaning.

Both of these play an important role in the growth of your business. Of course, your accurate record keeps you organized, and you can plan your success in step.

You do not have to handle it alone. Tax King Service, a professional bookkeeper and accounting service provider, can help you stay on top of your finances. So, you can focus on growing your business.

Your Questions Answered Here