Recently I was speaking to an acquaintance and she asked what the difference is between accounting and bookkeeping. It seems she hired a “bookkeeper” and some of what she required the employee to complete was really accounting. My friend didn’t understand how she failed with this hire and why the expectations were not met.
A good illustration to explain the difference is that accounting and bookkeeping are related in the same way recipes and ingredients are related. Your recipe ingredients provide what you need to create the meal and bookkeeping provides the materials you need to generate useful financial reports. But it is accounting that creates the reports you need to manage your business and make it a success.
In theory, there is a wide gap between bookkeeping and accounting, but the distinction is sometimes blurry. One way to look at it is that a bookkeeper compiles and records information. An accountant reviews, analyzes and presents the information in a useful format, explains what the numbers mean and makes recommendations. An accountant functions as an advisor.
With computer programs performing more tasks that were completed manually in the past, tasks become harder to separate and often cause this blur between bookkeeping and accounting. Many business owners now perform their own bookkeeping duties but lack the accounting skills to analyze their reports.
Accounting is a science that provides the framework for the bookkeeping system . You cannot have accounting without bookkeeping, but you can have bookkeeping without accounting. Bookkeeping is exactly as it sounds, keeping the books. Bookkeeping is the most time consuming and labor intensive part of accounting. It is also one of the most important parts because if it is not done, there is no way to keep track of the finances! Keeping the books current and thorough helps avoid chaos at year end and also saves a ton of money at the end of the year!
