Bookkeeping vs. Accounting: What's the Difference?

People often use "bookkeeping" and "accounting" interchangeably, but they're different jobs. Knowing the difference helps you hire the right help.

Bookkeeping: recording what happened

Bookkeeping is the day-to-day recording and organizing of financial transactions:

• Entering and categorizing income and expenses
• Reconciling bank and credit card accounts
• Managing invoices and bills
• Recording payroll and owner draws
• Producing basic monthly reports

Think of bookkeeping as building an accurate, organized record of everything that happened in your business.

Accounting: interpreting and using the numbers

Accounting takes those records and analyzes, interprets and reports on them:

• Preparing and adjusting financial statements
• Tax planning and tax return preparation
• Analyzing profitability and trends
• Budgeting and forecasting
• Advising on entity structure, such as when to elect S-corp status

Think of accounting as using the records to make decisions and meet tax obligations.

A simple analogy

Bookkeeping is like keeping a detailed, accurate medical chart. Accounting is like the doctor reading that chart to diagnose and plan treatment. The doctor can't do much with a chart full of gaps and errors.

Bookkeeper vs. accountant vs. CPA

	Bookkeeper	Accountant	CPA
Main focus	Recording transactions	Analysis and reporting	Advanced accounting, tax and audit
Licensing	Not required (certifications available)	Varies	State-licensed
Typical tasks	Categorizing, reconciling, monthly reports	Financial statements, tax returns, planning	Audits, complex tax, representation

Which does your small business need?

Most small businesses need both, but not in equal amounts:

• Bookkeeping every month to keep records current and accurate
• Accounting and tax help a few times a year: quarterly check-ins, year-end planning and tax filing

Many small business firms, like ours, offer both bookkeeping and tax-related services, which keeps the books and the tax return consistent.

Signs you need more help

• You're months behind on categorizing transactions
• You don't know if you're profitable
• Your tax preparer spends hours cleaning up your books each year
• You're considering an S-corp election, hiring or a big purchase

The bottom line

Bookkeeping builds the foundation; accounting builds on it. Get the bookkeeping right every month, and every accounting and tax decision becomes easier, faster and cheaper.

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Need help getting this right? TRIG Bookkeeping & Tax Services helps new business owners in Washington with company registration, monthly and annual bookkeeping, and government compliance. Contact us to talk about your business.

This article is general information, not legal or tax advice for your situation. Tax rules and fees change, so confirm current details with the IRS, the Washington Department of Revenue, or a qualified professional.