Alright, let’s talk bookkeeping vs accounting—because if you’ve ever stared blankly at your Xero dashboard at 10pm, muttering “what the heck is this line item,” you’re not alone. Plenty of Aussie business owners lump the two together like Vegemite and butter. But they’re not the same thing. Not even close, really.
Both bookkeeping and accounting entail key steps varying from recording every financial transaction to preparing statements. Understanding the two can save you the stress, time, and cold hard cash. In this article, we review their differences and how each is important to a business.
Bookkeeping vs Accounting: What’s the Difference?
So, what is bookkeeping, and what does it entail? Imagine that you run a small landscaping business in the ‘burbs. Every day you’re buying mulch, filling up the Ute, sending invoices, and hopefully getting paid. Bookkeeping is the act of recording all that. It’s the daily, weekly, and monthly grind of tracking your financial in-and-outs. The data entry. The reconciliations. The stuff most business owners try to avoid like the last snag on the BBQ.
Bookkeepers keep your records clean and tidy. They sort out receipts, track GST, manage payroll, and make sure your BAS is ready to roll. Without this foundation, accounting would be like building a house on sand. In other words, bookkeeping creates the firm foundation on which accounting is built.
Now, let’s flip the coin and get to understand accounting. What is accounting? It’s a step up the ladder. We like to think of bookkeeping as a financial diary and accounting as the full-blown autobiography with commentary.
Accountants take a deeper look at the data logged by bookkeepers and analyse it. Their work is to figure out or derive meaning from data. After the in-depth analysis, they prepare financial reports, interpret cash flow trends, and help business owners with strategic decisions like whether they can afford a new van or a new hire.
Accountants also handle compliance, taxes, annual reporting, and can legally lodge tax returns with the ATO.
To sum it up, bookkeepers do the tracking while accountants offer advice.
Bookkeeping vs Accounting: Are They Similar?
Is bookkeeping the same as accounting? To most people, the two financial experts seem to have the same roles. But they’re totally different, even though they’re part of the financial ecosystem.
Bookkeepers focus on the day-to-day transactions: keeping records of sales and purchases, reconciling bank feeds, and managing payroll.
Accountants step back and look at the bigger picture: preparing financial statements, lodging tax returns, and giving strategic advice. Accounting is a subjective matter because it relies on input from bookkeeping to figure out patterns and possibilities of expansion.
So, accountants must be certified, as in the case of Certified Public Accountants (CPAs), while bookkeepers need no certification. Therefore, an accountant can automatically be a bookkeeper, but the reverse is not true.
Is it a requirement to have both working at the same time? Nope, not really. Some small Australian businesses just hire a bookkeeper and check in with an accountant during tax time. Others prefer a full package where both bookkeeping and accounting work together, every single day.
When Do You Need A Bookkeeper?
Now that we understand bookkeeping and accounting, when do you need a bookkeeper, to begin with? As soon as your business becomes a legal entity and starts transacting, you should hire bookkeeping services. Be it purchasing new equipment, new stock, or paying staff or casual workers.
Of course, you can DIY bookkeeping using QuickBooks or Xero, but unless you’re a spreadsheet expert, chances are you will fall behind and fast. You’re likely to find receipts from six months ago undocumented because you’re juggling bookkeeping with running your business.
To be good at what they do, bookkeepers must be accurate and understand key financial topics. In most cases, the business owner or an accountant oversees the work of a bookkeeper.
When Do You Need an Accountant?
You might not need an accountant on a day-to-day basis for running a small business, but they come in handy when dealing with:
- Lodging tax returns to ATO
- Changing your business structure.
- Planning business expansion.
- Applying for business loans.
- Buying or selling a business.
Accountants go overboard to be like your financial strategists. They conduct accounting health checks to maintain you in good standing with the ATO and help you make sound financial decisions. And yes, a good one’s value is so evident that they can save you lots of money that you can use to settle their fees.
The Australian Bureau of Statistics states that over 2.5 million businesses were trading in Australia as of 30 June 2024. That tells you that there are probably as many good accountants as businesses. And with the tax regulations and laws shifting constantly, having someone in your team who understands the landscape is a game-changer business move.
Working With Bookkeepers and Accountants
Is it a good move to have both on your team? These two finance professionals work best together bookkeeper keeps the financial gears turning every day, while the accountant helps steer the ship long-term.
Let’s say, for instance, you run a restaurant in downtown Sydney. Your bookkeeper logs sales made every day, reconciles your EFTPOS transactions, records inventory purchases, and manages payroll for your staff.
Your accountant looks at your profit margins, helps your business with tax returns, and maybe even suggests replacing your current supplier with a new one after analysing your Cost of Goods Sold (COGS).
You see, these are different jobs, but the same team, and your business is better for it. Businesses should view bookkeeping vs accounting as a rivalry between two professionals. Yes, accountants can indeed work as bookkeepers, but a bookkeeper cannot be an accountant. Your business needs both, and such a business becomes more organised, less stressed, and better prepared when growth presents itself.
But again, is it a good idea to hire these professionals from the same firm? Yes, it is. A firm such as KB Accounts offers both under one roof, so your left hand knows what your right hand is doing. With that, there will be no miscommunication, no crossed wires. Just seamless support from people who actually understand your business, working as a team.
Can AI and Software Replace Bookkeeping and Accounting?
Tech has become an important part of running businesses. And KB Accounts and most other Australian accounting firms use the latest cloud-based tools like Dext, Xero, and MYOB. But even the fanciest and smartest software still requires a human who knows what they’re doing. Feed garbage in, you get garbage out. Isn’t that what they say about computers?
Chris Freeland, CPA Australia CEO, opines that automation is growing in finance, but advisory services and human judgment remain irreplaceable. So, nope, your bookkeeper and accountant aren’t going anywhere soon.
Tips for New Business Owners on Accounting & Bookkeeping
To ensure you’re in check with your business accounting and bookkeeping needs, you need to practice several dos and don’ts.
- Don’t wait ‘til tax time – If you’re scrambling in June, it’s already too late.
- Outsource early – Even part-time bookkeeping help can save hours.
- Separate your personal and business accounts – Trust us, it’ll save your sanity.
- Use tech, but don’t rely on it blindly. Let the pros interpret what your software spits out.
- Check in with your accountant regularly. Don’t ghost them until EOFY.
The Bottom Line
Now you know bookkeeping and accounting isn’t a battle between two financial professionals, but a partnership. Both have vital roles to play in keeping businesses up and running and thriving.
Bookkeeping has everything to do with keeping your records organised and clean. Accounting, on the other hand, makes sense of your financial books. Whether you’re running a startup or a bustling operation with an expanding team, knowing who does what and when to call them is half the battle. The remaining half is all about having the right people on your side.
That’s where KB Accounts comes into play. We’re partners who want to see your business succeed, right from the first sale to your five-year expansion plan. And we do it without confusing you with jargon or hidden fees. Need help figuring out your business accounting and bookkeeping needs? Give us a call or send us an enquiry. We’re friendly and know our stuff.