If I asked you "what do you think is the difference between accounting and bookkeeping", what would you say? Anyone that doesn't work in the industry would probably say 'none'. However, it just isn't true that there is no difference at all and I have created a great guide which should make the difference obvious.
A bookkeeper and an accountant have common goals but each one make up different stages in the financial cycle.
If you are a business owner, you probably already know that bookkeeping comes before accounting but some of the functions of both of them may overlap.
What is involved in bookkeeping
Purchases, sales, payments and receiving of money for a sole trader or a business are just part of the bookkeeping process of recording the financial transactions. The main work of a bookkeeper in a financial cycle is:
- posting a company's debits and credits
- update, maintain and balance general ledgers, subsidiary ledgers and historical accounts
- create invoices and process payroll
- record the financial transactions of a business
Bookkeeping means maintaining the general ledger. A professional bookkeeper records day-to-day financial transactions from sales and expense receipts. Much of this work is now completed by online automated accounting software which makes it much easier to perform this tasks, especially when ledgers are large.
Even though the use of technology makes things easier, your good business processes should ensure that certain transactions have supporting documents. The information on business transactions that require supporting documents is available at the Australian Taxation Office (ATO).
What is involved in accounting
Record, sort, store, summarise, retrieve and present financial transactions is the process of accounting. This helps business make that all important judgment call of what is right or wrong for their situation. The main work of an accountant may include:
- analysis of the operational costs of a business
- search for and record transactions that have been missed from the books
- preparing financial statements
- complete tax returns including income tax returns
- help business owners with financial decisions
If you are an accountant you would provide reports and put together the financial indicators of a business. This is to deliver a better understanding of the profitability and cash flow of a business. All this information uses the information that the bookkeeper first enters into the ledgers. Also, accountant can help with financial forecasting and strategic tax planning.