Bookkeeping and Accounting: What Each One Does

Quick Answer: Bookkeeping is recording: entering each sale, bill, payment and transfer, and reconciling accounts to their statements. Accounting is using those records: adjusting them at period-end, preparing financial statements, filing taxes and advising on decisions. A bookkeeper keeps the ledger accurate day to day; an accountant interprets and reports it. Most small businesses need bookkeeping from the first sale and an accountant at least once a year.

Bookkeeping and accounting are two stages of the same process. Bookkeeping produces a complete, reconciled record of what happened. Accounting takes that record, applies rules and judgment to it, and turns it into financial statements, tax returns and advice. One cannot be done well without the other, which is why the terms blur, but the skills and the price differ.

What does a bookkeeper do?

A bookkeeper's work is continuous and transaction-level. On a normal week for a small business, that looks like:

• Recording sales and customer payments, and matching deposits to invoices.
• Entering supplier bills and recording when they are paid.
• Categorizing bank and credit card activity against the chart of accounts.
• Reconciling each bank and card account to its monthly statement so the ending balances agree.
• Tracking what customers owe (receivables) and what the business owes (payables).
• Filing receipts and keeping the source documents the IRS expects you to keep.
• Running payroll or feeding hours to a payroll provider, in some businesses.

The output is a ledger you can trust and a set of routine reports: a profit and loss for the month, a list of unpaid invoices, a reconciliation for each account. A bookkeeper does not need a degree or license in the US, though many hold certifications, and their rate reflects that.

What does an accountant do with the books?

An accountant works at a higher level and less often. Typical work:

• Adjusting entries at month-end or year-end: depreciation on equipment, accrued expenses that have not been billed yet, prepaid costs spread over the months they cover, and corrections to anything categorized wrongly.
• Financial statements: the income statement, balance sheet and cash flow statement, prepared in a form a lender, investor or buyer will accept.
• Tax returns and planning: preparing the business return, advising on entity choice, estimated payments and the timing of purchases.
• Analysis and advice: margins by product, cash runway, pricing, budgets and whether you can afford to hire.
• Assurance: reviews and audits of financial statements, which only licensed CPA firms perform.

The accountant's work rests on the bookkeeper's. If the bank account was never reconciled or half the expenses sit in "Uncategorized," the accountant has to fix that first, at an accountant's rate.

One purchase, two jobs

Follow a single transaction to see where the handoff happens. On March 3 the business buys a $2,400 laptop on its credit card, and on March 12 an annual software subscription of $1,200 comes out of the checking account.

The bookkeeper's part. Both lines appear on the statements. The bookkeeper records the laptop against an equipment account rather than office supplies, attaches the receipt, and records the subscription as a payment. At month-end the card and checking account are reconciled, so both charges are confirmed as real and recorded once.

The accountant's part. The laptop is an asset that will be used for several years, so the accountant decides how to treat it for the books and for tax, which may mean depreciating it or expensing it under an election, and posts that entry. The $1,200 subscription covers twelve months; on accrual books the accountant spreads it at $100 for each month covered instead of letting March carry the whole cost. Neither decision changes what the bookkeeper recorded. Both change what the financial statements and the tax return say.

Bookkeeping vs accounting side by side

The SBA's overview of managing business finances makes the same distinction in cost terms: a CPA will typically cost more than a bookkeeper, who handles the basic day-to-day functions but lacks a CPA's formal accounting training.

Where do bookkeeping and accounting overlap?

In a small business the line is rarely clean. Some places the two meet:

• Month-end close. A good bookkeeper often posts simple adjustments, such as recurring depreciation the accountant set up, and produces a profit and loss that is close to final.
• Chart of accounts. The accountant should design it, or at least approve it, because it determines how the tax return is prepared. The bookkeeper uses it every day. See our guide to a small business chart of accounts.
• Cash versus accrual. The accountant decides which method the books follow; the bookkeeper records accordingly.
• Owner as both. Many owners do the bookkeeping themselves and hire an accountant only for the return. That works if the owner's records are complete and reconciled.
• Firms that do both. Plenty of accounting practices offer bookkeeping as a separate, lower-priced service, sometimes staffed by bookkeepers supervised by the accountants.

Which one does your business need at each stage?

A rough guide by stage, not a rule:

1. Just started, a handful of transactions a month. You need bookkeeping, which you can do yourself with a spreadsheet or entry-level software and a monthly hour, following a routine like bookkeeping for small business. Bring in an accountant to choose the entity type and to file the first return.
2. Steady sales, a few hundred transactions a month, maybe a contractor or two. Bookkeeping becomes a real time cost. Hire a bookkeeper or a service; the pricing models are covered in bookkeeping services for small business. Keep the accountant for year-end and tax planning.
3. Employees, inventory, a loan or investors. You now need accounting more than once a year: quarterly reviews, accrual-basis statements a lender will accept, payroll compliance, and planning around estimated taxes. This is where the choice of tax accountant starts to matter.
4. Raising money, selling, or a lender asking for reviewed statements. You need a CPA firm for review or audit work, on top of clean monthly bookkeeping.

The records both of them depend on

Everything above starts from source documents. The IRS's recordkeeping guidance for small businesses notes that purchases, sales, payroll and other transactions generate supporting documents, and that good records help you prepare financial statements, track deductible expenses and support the items on your tax return. That one sentence covers both jobs: the bookkeeper keeps the records, the accountant prepares the statements and the return from them. In practice the most complete record of what happened in a small business is its bank and card statements. When a bookkeeper takes on a new client, or an accountant receives books that were never kept, the first job is usually to load those statements into the ledger.

That step is mechanical and is where tools help most. Accounting software bank feeds pull recent activity; for older months most banks offer only PDF statements, and QuickBankConvert converts those into spreadsheet rows (date, description, amount, balance) that can be imported or categorized. The judgment that follows, deciding what each line is and how it should be reported, is the bookkeeping and accounting work itself.

Related guides

• Catch-up bookkeeping: getting months of records current
• Accounting packages for small business compared
• What account reconciliation means