Home » What is the relationship between Bookkeeping and Accounting?

What is the relationship between Bookkeeping and Accounting?

by janeausten
Online Accounting and Bookkeeping Services

Every business, big or small, requires bookkeeping and accounting services to maintain and grow their business! They must prepare a financial record, whether to be the next ticker in the stock market, or if you are the corner deli or mom-and-pop shop. These records are to be presented to the IRS or if you ever want to bring in an investor. Bookkeeping involves recording of the financial activity. Adjacent to that, accounting includes analysing the financial information and digging a bit deeper to help the owner make future business decisions.

Bookkeeping and accounting are finance-related activities that are required for every business. On the one hand, bookkeeping is in charge of keeping records of financial transactions, whereas accounting is in charge of interpreting, categorising, analysing, reporting, and summarising financial data.

True, they both deal with financial data and necessitate basic accounting knowledge. However, these two functions are diametrically opposed and each has its own set of advantages. 

What is the connection between bookkeeping and accounting?

Bookkeeping is a separate process from accounting, as it sets the tone for the rest of the accounting process. The financial activity is recorded and organized into proper categories set forth by the type of business. There is a standard chart of accounts, however, sometimes there can be accounts that may be necessary to track activity particular to that company. Accounting is then the broader process in that it involves the summarising, analysis and reporting of these financial transactions.

Bookkeeping is the first step of having accurate accounting for the company. Having proper bookkeeping practices can help any business achieve cashflow goals, pay the desired payroll to their employees and to the business owners themselves! Bookkeeping also helps interpret the accounting information for decision-making by internal and external users.

Bookkeeping can involve the following steps:

  1. Bookkeepers post the credits and debits
  2. Produce invoices
  3. Maintain and balance the current account and general ledgers
  4. Complete payroll
  5. Keep track of financial transactions

Accounting involves the following steps:

  1. Accountants use the information provided by the bookkeepers.
  2. Accountants prepare financial statements and inform the company to make further decisions.
  3. Interpret and analyze the financial statements.

Maintaining the financial statements and books will indeed help you grow your business, but it is also mandatory to keep the records. It is a legal requirement under many acts. Because of this hiring for online accounting and bookkeeping services can help owners with their business goals. Accountants and bookkeepers also provide unique and innovative ideas to grow your business, helping you save money avoiding costly mistakes.

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