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There are two terms that you will hear when starting a business: bookkeeping and accounting. But what is the difference between the two? They may seem interchangeable, but each has its own set of important functions.

In reality, these two terms are quite synergistic in how they work. Here is your guide to the difference between the two and how they can impact a business.


Bookkeeping is the practice of recording transactions for the business in a general ledger. That ledger can be a physical book or a software program. It contains any of the financial transactions for the business since the very beginning.

This is daily record-keeping of sales, cash, expenses, bank transactions, and more. Recording transactions is essential to any new business. Moreover, its accuracy is one of the most crucial aspects to the success of a company’s finances.

Bookkeeping can be complex depending on the size of the business as well as the total amount of transactions that get conducted daily, weekly, and monthly.

Proper bookkeeping includes cash, accounts receivable, inventory, accounts payable, loans payable, sales, payroll expenses, purchases, and the owner’s draw.


Accounting pressures, processes, and communicates financial information. Accounting takes all of the information recorded in the bookkeeping method and uses it to prepare records of the financial affairs for the company.

It is used to determine the overall financial health of the company as a whole. Accounting is also used for preparing tax payments either quarterly or at the end of the year.

There are a few methods for accounting. One is based on cash received and cash on hand. The other is known as accrual basis accounting. The former is much simpler based on revenue received and payments as they are made.

The latter is based on revenues to be earned rather than those received. It is a projection of sorts. It is also why having a dedicated and experienced accountant on hand is such an important thing for the success of a business.