Is Bookkeeping Really the Same as Accounting and Why You Should Care

Punkin Admin Account
1 day ago
3 min read

Have you ever wondered if bookkeeping and accounting are the same things? If you’re starting a new business, you might be confused about these terms. Don't worry! In this blog post, we will talk about the basics of bookkeeping and explain how it’s different from accounting. By the end, you’ll know what to do, even if you can’t afford to pay someone to keep track of your finances right away. Let’s dive in!

What’s the Difference?

First, let’s talk about the difference between bookkeeping and accounting.

Bookkeeping is like keeping a diary for your money. A bookkeeper records every dollar that comes in and goes out of your business. They make sure that every sale, every expense, and every payment is written down and organized.

On the other hand, accounting is more complex. Accountants take the information provided by bookkeepers and analyze it to help business owners understand the bigger picture. They create financial statements, help with budgets, and even provide tax advice. So, while bookkeeping is important for keeping records, accounting helps you make decisions based on those records.

Why Bookkeeping Matters

Now, you might be thinking, “Why should I care about bookkeeping?”

Bookkeeping matters because it helps you understand your business's financial health. If you don’t keep track of where your money is going, you might end up spending more than you earn, causing problems. A good bookkeeping system can prevent that.

If you’re a new business owner, you may not be able to hire a bookkeeper right away. That’s okay! You can learn some simple bookkeeping techniques to start keeping track of your money.

Bookkeeping Basics

Categories and Sub-Categories

One of the first things you need to know about bookkeeping is how to set up your accounts. You can think of this like organizing your schoolwork.

Categories are the big groups you put your stuff into.
Sub-categories are smaller groups within those big groups.

For example, let’s say you have a lemonade stand. You could create a category called "Income" and then add a sub-category for "Lemonade Sales" and another for "Snack Sales". This way, you can see how much money you’re making from each type of sale!

Here’s a quick visual snippet:

```

Income

├── Lemonade Sales

└── Snack Sales

```

Expenses

Next, let’s talk about expenses. You need to know where your money is going, right? Just like you might have an allowance, your business has costs that need to be tracked.

For example, under the category of “Expenses,” you might have:

```

Expenses

├── Supplies

│ ├── Lemons

│ ├── Sugar

│ └── Cups

└── Marketing

└── Posters

```

This way, you can easily see that most of your money is going towards supplies and how much you are spending for marketing!

Organizing Your Records

It’s important to set up a system to keep your financial records organized. Here are some helpful tips:

Choose a Method: You can use a notebook, a spreadsheet program like Excel, or even bookkeeping software. Pick what you feel comfortable with!
Be Consistent: Make a habit of updating your records daily or weekly. The more consistent you are, the easier it will be to keep track!
Check Your Work: Even if you hire a professional later, knowing the basics means you can always check that they are doing it right.
Keep Receipts: Always keep your receipts and invoices. This way, you can have proof of your income and expenses when you need them.

Why You’ll Eventually Need an Accountant

While you might start by doing your own bookkeeping, it’s usually a good idea to have an accountant (or CPA) help you out when your business grows.

Accountants can assist you with taxes and ensure that you are compliant with local regulations. They can also help you interpret the data and give you valuable advice on improving your business.

Remember, even big companies with teams of accountants still rely on bookkeepers to maintain their records. Every business, big or small, benefits from both bookkeeping and accounting!

Conclusion

So there you have it! Bookkeeping and accounting are not the same, but both are crucial for keeping your business healthy.

As you start your new venture, remember to set up your bookkeeping system by creating categories and sub-categories for income and expenses. Even if you can’t afford to hire someone right away, learning the basics will help you keep your business organized.

And don’t forget, as your business grows, you’ll want to reach out to an accountant to help dive deeper into your financial health.

Happy bookkeeping!