Accounts, Bookkeeping, Bookkeeping & Accounting, Business, Business Advice

What is the difference between bookkeeping and accounting?

May 27, 2022

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Which one do I need and why?

Even though a lot of entrepreneurs and business owners use the terms “bookkeeping” and “accounting” interchangeably, the two indicate two different types of services. For any business owner, it’s important to know the difference so that they know exactly what to buy, whether it be a service provided by a professional, an office, an online service, or a software.

In this article, we’ll be going through the differences between the two terms and kinds of services, so that you can know exactly what to purchase when the moment comes.

What is accounting?

Accounting is a different activity from “recording.” More than recording data, accounting is about analyzing and interpreting information. When you analyze your business’s financial records, you can make informed financial decisions. So, accounting activities include:

Reviewing financial statements;
Collecting information about the business’s profitability;
Forecasting possible outcomes and make decisions based on financial data;
Preparing and filing taxes.

Just like bookkeeping, the accounting tasks can be handled with the LessAccounting software or by hiring a professional.

Bookkeeping vs Accounting

So, what is the difference between bookkeeping and accounting? The short answer is that while bookkeeping is the activity of recording a business’s finances, accounting means analyzing financial records. This simple definition, however, is still not enough to draw a line between the two terms. So let’s dig into the deeper details.

What is bookkeeping?

Recording business finances – which is, as mentioned above, the definition of bookkeeping – means to record any incoming and outcoming transactions:

Any sale or purchase;
Any business debit or credit.

The records can be maintained in any form, although today the most efficient way of keeping financial records is through specialized software, like the one provided by Less Accounting. Other than recording data, these kinds of software can also generate financial statements such as cash flow statements, balance sheets, and income statements.

Bookkeeping or accounting: which one do you need?

The answer to this question is not straightforward and deserves further explanation. First of all, any business – no matter how small – should take care of their bookkeeping in some way. Small businesses often don’t need to hire an external professional to take care of their bookkeeping, but they still need to record their transactions. The most effective way to keep track of any transaction is with software. What once was done with long paper sheets and – then – endless Excel files can now be done with accounting software like Less Accounting‘s. Why is a specific software better than an Excel sheet? The short answer is because a lot of features can be automated, data is provided in a clearer way, adding and editing information is more immediate, and you can create reports and statements with a couple of clicks. Accounting requires even higher expertise because an accountant is responsible for not only assessing your business’s finances but also making financial recommendations, all aside from filing your taxes correctly so that you don’t make mistakes or have delays (Mistakes or delays can bring you penalties. Penalties are additional money that you need to pay to your country’s financial authority). Because they need to assess financial data, accountants and accounting services usually include bookkeeping skills and services. Accounting is less essential for small businesses, while it becomes more and more important as your business or company grows.

Is hiring bookkeeping/accounting services mandatory?

Hiring someone to take care of your financial records and analysis isn’t mandatory. What is mandatory is that you file your taxes and financial statements correctly and according to your country’s financial authority. Many companies decide to hire an external bookkeeper or accountant to delegate this part of their work, or because the company is so big that finance needs to be taken care of by a professional with expertise. Small entrepreneurs or beginners can take care of their financial records autonomously. For them, Less Accounting bookkeeping and accounting software is even more important. The quality and efficiency of the bookkeeping tool you utilize affects the accuracy of your records. The more accurate your records are, the more informed your decision, the more precise your budget evaluation, and so on… Many young entrepreneurs choose to use Excel sheets to record their transactions. This way they think they’ll be saving some money, especially if – instead of Excel – they use Google Sheets which is absolutely free. This can work, but only at a very beginning stage. When your transactions start increasing, filling out an Excel table won’t be effective anymore. Furthermore, using Excel or Google Sheets means that you need to perform a lot of activities manually – for example, creating sales reports or calculating how much in taxes you’ll be paying each year. With Less Accounting, a lot of these features are automated, so your work is simplified and made more effective.

Bookkeeping and accounting: which is more important?

We’ve mentioned that bookkeeping is fundamental for any business, but this doesn’t mean that it’s just more important than accounting. Ideally, a small business should have both. Furthermore, the two aspects being so important doesn’t mean that you need to hire a professional. It’s important that you don’t underestimate your ability. You can take care of bookkeeping and accounting for your business on your own: you can become familiar with the terms and the rules, and you can learn how to keep track of transactions and then analyze the data. Of course, it all becomes easier when you’re using a professional tool: Less Accounting allows small business owners that don’t want or can’t hire a professional to become their own bookkeeper and accountant. Although we’ve just gone through an article that explains the differences between bookkeeping and accounting, our conclusion is that with Less Accounting software you can take care of both aspects as one.