When you first get started in a small business, you'll hear the terms bookkeeping and accounting bantered about almost interchangeably. However, these terms do not mean the same thing. Small businesses have both bookkeeping and accounting functions, and they are synergistic. It's important to understand the two of them because organized financial records and balanced finances are central to the success of a small business.
What Is Bookkeeping?
Bookkeeping is the process of the daily record-keeping of all of a company's financial transactions. Bookkeepers record the sales, expenses, and cash and bank transactions of the business in a general ledger. The first thing you need to do when you start a business is realizing that this ledger and its accuracy are central to your company's finances. Recording these transactions is referred to as posting. A bookkeeper may also generate invoices and/or complete payroll. The complexity of the bookkeeping process depends on the size of your business and the number of transactions conducted daily, weekly, and monthly.
What Is Accounting?
Accounting has been called the language of business. It is the process of measuring, processing, and communicating financial information. Accounting provides the business owner with information on the company's resources, the financing of those resources, and the results the business achieves through their use.
The function of accounting is to prepare a record of the company's financial affairs. Accounting also includes the interpretation of the numbers prepared by the bookkeeper to determine the financial health of the business. It also includes the presentation and financial health and control functions of the company. A further function of accounting is the preparation of tax and other required financial materials.