The Difference Between Bookkeeping and Accounting in Small Business

The Difference Between Bookkeeping and Accounting in Small Business

You will often hear bookkeeping and accounting interchangeably when you start your first small business. You will often hear the terms bookkeeping or accounting used interchangeably when you first start a small business.

Bookkeeping refers to the recording of your business transactions in your general ledger. This is the book or program that records all financial transactions for your company since its inception.

Accounting is the art of analyzing the data in the ledgers to gain insight into your company’s financial decisions.

The Difference Between Bookkeeping and Accounting


Bookkeeping- This is the process of keeping a daily record of all financial transactions in a company. In a general ledger, bookkeepers keep track of all transactions, including cash, sales, and bank transactions.

When you start a company, one of the most important habits to develop is the ability to record transactions in your general ledger. Your company’s finances will be based on the accuracy of your ledger.

Posting is the term used to describe the act of recording these transactions. Bookkeepers can also create invoices or complete payroll. The complexity of your bookkeeping process will depend on how large your business is and how many transactions are performed daily, weekly, and monthly.

All businesses, even those with the smallest size, should set up and track the following nine accounts to provide sufficient financial information for their accountants for tax and financial statements.

1. Cash There are two parts to the Cash ledger. These are Cash Receipts (or Cash Payments) and Cash Payments (or Cash Budget ).

2. Accounts Receivable If your company offers credit accounts, it will have accounts receivable. This information can be used to generate invoices or send bills to credit customers.

3. Inventory: You must keep track of inventory if you sell products and not services.

4. Accounts payable: You will have accounts payable if you purchase items for your business, such as office supplies, using credit. This account, also known as trade credit, is what you owe suppliers. Trade credit comes with a fee.

5. Loans Available: You must be able to track your payments and due dates if you borrow money to purchase larger items.

6. Sales You need to be able to track your sales using credit or cash.

7. Payroll expenses: The cost to pay your employees.

8. Purchases This includes finished goods and raw materials. It is used to calculate the firm’s Cost of Goods Sold on the Income Statement and the Cash Budget.

9. Owner’s draw: This amount is taken from the company by the owner of a small business.

Bookkeeping Methods

There are two types of bookkeeping: single-entry and double-entry. Double-entry bookkeeping is the most popular method used by businesses. Each entry to an account must be matched with another account.

A $10 cash sale, for example, would require two entries: a $10 debit entry to an account called Cash and a $10 credit to an account called Revenue.

A good bookkeeper is meticulous about accuracy and completeness. A bookkeeper should be able to make mistakes even if they are meticulous. Otherwise, an accountant will supervise them. A few studies show that an external accountant is best if the business is small.


Accounting is often called the language for business. Accounting is the act of analyzing, processing, and communicating financial information. Accounting gives the business owner information about the company’s finances and the results it achieves.

Accounting is the preparation of a financial record for a company. Accounting is the interpretation of numbers prepared by the bookkeeper in order to determine the financial health and condition of the company.

It also involves the presentation of the financial health of a company. This includes preparing financial statements and indicators that can be derived. Accounting also includes the preparation of tax returns and other financial material.

Accounting Methods

Two different accounting methods exist. The first is based on how much cash you have and how much cash you have received. The other is accrual accounting. 

Cash-based accounting is simpler than accrual-based accounting. Cash-based accounting records revenue as it is received and payments when it is made. This is a limited method that applies to service businesses with small inventories.

Accrual basis accounting is based on revenues earned rather than received. This is a value that is transferred between accounts. You transfer the value to your equipment account if you buy a point-of-sale terminal.

Credit is placed in the cash account and debited to the equipment account. You can use a chart of accounts to help you decide when credit and debit accounts should be used.

Private entities can also outsource the accounting function. Some small businesses outsource both the accounting and bookkeeping functions. To understand the reports that you will receive, even if you have outsourced your bookkeeping or accounting functions, it is important to know them both.

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