Differences between Accounting and Bookkeeping

Starting your own business often starts with a passion. Whether it’s opening up your own beauty salon or opening up a clothing store, your business is yours and you should be able to work with what you love. Having the plan to be your own boss is great, however, we still have the finances to worry about - we want to make sure that we can make a profit from our dreams and goals! While starting and managing your business, there are a million things on your plate to keep you busy.

While the lines between bookkeeping and accounting are starting to blur,  both are essential financial functions and there are key differences that are important for any start-up or small business to be aware of. To put it simply, bookkeeping is the record-keeping that accountants utilize to analyze and record the financial results of the company. 

Bookkeeping Basics

The work of bookkeeping professionals is vital because it can affect so many different aspects of the business. 

Bookkeeping organizes a company’s data by keeping records of the financial affairs of a business. Every business needs to practice bookkeeping in order for leaders, accountants, lenders, and/or analysts to make future business and financial decisions. Bookkeepers typically do not make the financial decisions for the business but their work is essential for the decision-makers overseeing the business and accounting. Bookkeepers collect and organize record daily financial transactions. Because of the need for accuracy by the bookkeepers, an accountant often oversees their work. 

As we said above, the work of these bookkeeping professionals is so vital because it can affect so many different aspects of the business. Whether it is preparing tax returns for the Internal Revenue Service (IRS) and/or state and local taxing authorities, budgeting for the next year, presenting information to investors, or simply wanting to stay organized as a business owner, bookkeeping is an essential function for any business. 

Accounting

Accounting, compared to bookkeeping, takes a more directive role when it comes to finances. While bookkeeping keeps track of all financial transactions, accounting is where you take all this financial information and apply it to your business and make decisions accordingly. Accountants prepare tax documents and evaluate the financial standing of a business. Accountants also apply their skills to help the company manage its business - this can be, for example, by analyzing trends (increasing revenues or unusual expenses) or determining if one product line of a business is more profitable than another.  

This analytical process is an important part of accounting and is why extensive training and schooling is required to become a certified public accountant (CPA).  For a small business that has an employee with some accounting experience, it may be possible to handle the accounting functions in house. 

KPMG Spark

Where does KPMG Spark fit into this you might ask? Spark is dedicated to small business bookkeeping. While accountants are responsible for the entire accounting process, a bookkeeper is generally responsible for the recording and organizing process. Having your own bookkeeper for your business is valuable to help keep your records ordered so you can do more for your business and get back to why you started your business in the first place. Bookkeepers are also generally less expensive than accountants. By outsourcing your bookkeeping to Spark (which may be expensive than an in-house bookkeeper), you can have your records clear and organized and still make all your important business decisions. For larger businesses with many assets and resources, a dedicated accountant can be necessary—but for a small business, a dedicated bookkeeper is largely sufficient for its needs and generally more affordable than an accountant - that’s the value KPMG Spark brings to your business.

This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.