Bookkeeping vs Accounting: A Quick and Easy Guide

There’s a lot of confusion surrounding bookkeeping and accounting. Are they the same thing? Which one do you need? Should you hire one person to do both?

In this guide, discover the three major differences between bookkeeping vs accounting and settle once and for all who you should hire based on what’s happening in your business.

What is bookkeeping?

Bookkeeping tracks your income and expenses so that you’re always in the loop of what’s happening in your small business.

For example, if you want a clearer picture of your income and expenses over a specific period, create a profit and loss statement (a.k.a. income statement).

What is accounting?

Accounting is a level above bookkeeping.

It aims to help you understand and optimize the financial health of your business based on your bookkeeping records.

Using the same example above, an accountant can identify cost-saving opportunities from the profit and loss statements created on a bookkeeping software.

Difference	Bookkeeping	Accounting
Scope	Administrative (e.g., issue online bank transfer)	Analytical (e.g., review expenses to identify cost-saving opportunities)
Goal	Keeps your business finances in check	Improves financial health of business
Cost	Easy and affordable thanks to wallet-friendly bookkeeping software	More expensive Costs at least $70-$100 per hour (or $300-$800 for a flat rate)

What is the difference between bookkeeping and accounting?

1. Scope

Bookkeeping is administrative in nature.

Common tasks include:

• Issuing online bank transfers to vendors and subcontractors
• Preparing financial statements like balance sheet, profit and loss statement, and cash flow statement every year
• Reconciling entries for bank and general ledger accounts

Unlike bookkeeping, accounting is an analytical process.

It involves complex tasks, such as:

• Filing tax forms for month or close year-end process
• Reviewing expenses to pinpoint cost-saving opportunities
• Assisting with external auditors to examine financial statements

Accountants may also perform bookkeeping tasks.

2. Goal

Bookkeeping keeps your business finances in check.

When you maintain your books daily, you’re better informed about the money going in and out of your business.

More importantly, you can accommodate for slow periods and set the appropriate budgets for expenses (e.g., hiring contractors, enrolling in a course, upgrading to a new web hosting plan).

Now, what about accounting?

Without bookkeeping, it’s impossible to draw insights and improve the financial health of your business.

Accountants offer valuable tax-related advice, hence the hefty price tag (more on that later).

The advice can be as simple as identifying the tax deductions you’ve missed or as complex as advising you to switch from LLC to C-corporation and pay yourself a fixed salary to save on taxes.

And yes, in case you’re wondering, using a bookkeeper software or hiring an accountant is fully tax deductible!

3. Cost

DIY bookkeeping is easy thanks to its administrative nature and the abundance of affordable software.

For instance, upload your receipts via the FreshBooks and MMC Receipts integration if you want to record your expenses. Both tools cost $15/month each.

It certainly beats saving these PDFs in Dropbox and digging through dozens of sub-folders to access them when tax season rolls around.

Source: YouTube

Unlike bookkeeping, you need to hire a professional to do your accounting. There’s just too much complexity involved!

Depending on the city you’re in, a skilled accountant can cost at least $70-$100 per hour (or $300-$800 for a flat rate).

Bear in mind that the more messy your financial transactions are (e.g., coded to the wrong accounts), the more expensive it will cost to hire an accountant to clean them up.

Should you hire a bookkeeper or accountant?

Our recommendation?

If you have few transactions, manage your own books using a bookkeeping software (or spreadsheet) and hire an accountant to file your tax annually.

However, if you have an avalanche of transactions and work with multiple employees or subcontractors, you’re better off hiring an accountant every month or quarter.

As a solo freelancer who works with a maximum of five clients every month, I use a spreadsheet to stay on top of my clients and income. Whenever I book a new project, I update it immediately.

Note the columns below that show my project and invoice status. These grid boxes indicate the money that goes into my business and what else needs to be done. The chart on the right helps me gauge my best and worst months—valuable information that helps me plan my workload accordingly.

Source: Marijana Kay

For expenses, I record them on a separate spreadsheet.

This approach might not be feasible if you’re a business owner with mountains of expenses spanning across different categories.

In this case, use a bookkeeping software that codes your transactions automatically. Tools like Cratoflow separates each transaction by category and assigns it an account general ledger code without you doing the leg-work.

It also instantly categorizes your deposits and withdrawals and reconciles payment entries to invoices, gaining you back time to run your business.

Grab the Cratoflow lifetime deal on AppSumo today for $69.

Whatever your decision is, don’t skimp on hiring a professional for a fresh pair of eyes!

Don’t let bookkeeping and accounting become a chore

Did this bookkeeping vs accounting guide clear up the confusion?

Bottom line, whether you hire a bookkeeper or accountant, avoid managing your financial records at the last minute.

For small business owners, commit to maintaining your books every month and use a bookkeeping tool like Cratoflow to code all transactions correctly. When tax season approaches, hire an accountant and grant them access to your tool to review them. That way, they can unearth opportunities to optimize your savings and revenue.

Sure, it might set you back at least $300 annually, but you’ll end up saving hundreds and thousands of money in the coming years.

Running a business seems like a chore—it doesn’t have to be. Browse over 12,000 tools on AppSumo to save big on the best tools to run and grow your business today.