Financial Consultants: Bookkeeping vs. Accounting: Why You Should Care
What is the difference between bookkeeping and accounting and why should I care?
What is Bookkeeping?
- Bookkeeping is the recording of daily transactions that follow a defined process in a cyclical manner. Bookkeeping is broken down into parts such as Accounts Payable, Accounts Receivable and Payroll. Think of bookkeeping as the foundation of your financial data.
What is Accounting?
- Accounting is the setting up of the Bookkeeping system, monitoring the system that it is working as it should and then interpreting the data produced by that system. Accountants will oversee the Bookkeepers and guide them based on Accounting principles. Accounting is much more subjective than transactional.
Why should you care about bookkeeping and accounting?
- Most small business owners take the least amount of time and spend the least amount of resources (Money to pay for talent) on their bookkeeping. They are focused on the end result of getting money in. They are usually less focused on the process of bookkeeping and accounting.
- Generally small business owners reach a point in their growth that collecting money and paying bills is no longer providing them with the answers they need to make business decisions.
- Proper bookkeeping systems created by Accountants provide insight into HOW your business is doing. An accountant will be able to interpret this information to provide you with data to make informed business decisions. Accounting takes the guess work out of the question “So how’s business?”
What is the difference between my CPA and my CFO?
- Typically the CPA is focused on historical data and tax implications. The CPA will use historical data to file your tax returns, estimate your future tax liability and guide you on the best practices on compliance.
- The CFO uses the historical data to project into the future. While the CFO is also concerned with tax implications and compliance, their main focus is on the future and making business decisions. The CFO is focused on strategic decisions for your business. The CFO is looking to answer questions about how to help you implement your financial growth plan. The CFO’s main job is to help you anticipate financial changes in your business.