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Accounting vs Bookkeeping - What's the difference?

Danny Pritchard
Strap in kids, because it’s time to dig a little deeper into the Bookkeeping vs Accounting enigma. What do we really know? Aren’t they kind of, exactly the same thing? They’re both essential business functions monitoring financial transactions. They both deal with financial data. They both involve basic accounting understanding. So what gives? Well, it’s easy to confuse the two, we’ll give you that. Much like potatoes and po-tah-toes, they share the same goal of keeping your company finances on track, and therefore keeping your business moving, growing, and thriving. However, despite their similarities, there are some very important differences that are important to understand before closing your eyes and picking one. Same same, but different, you know? So, if you’re a New Zealand business needing some help with the books, it’s probably a good idea to read on. Let’s break it down for the people in the back.

Are accounting and bookkeeping the same thing?

The short and sweet answer? No, they’re not. While both accounting and bookkeeping involve the handling of financial data, they offer support in different stages of the financial process. In its simplest terms, bookkeeping focuses on the recording of financial transactions, whereas accounting usually involves understanding, interpreting, analysing, and summarising that financial data. However, like any good mystery novel, there’s more to the story than it seems.

Bookkeeping involves the recording and organising of financial data, typically dealing with the day-to-day accounts that come with running a business or selling a product or service. This includes documenting daily financial expenditure, reconciling bank statements, chasing up loose receipts and invoices, payroll processing, payday filing, and more. And while it might sound simple, bookkeepers are by far and large the unsung heroes of the business world.

Keeping track of finances at such an incremental level can get real overwhelming, real fast. Unfortunately,  it’s also crucial for maintaining a healthy and progressing business. You need to be able to keep a meticulous account of your financial data in order to draw accurate conclusions and set future goals based on your business performance, which is where accounting comes in. A mouthful, I know. But on a practical level and because we love a good bullet-point list...

Typical bookkeeping services include:

  • Payroll systems
  • Invoicing
  • Receipts and bills
  • Record keeping and reconciliation
  • GST returns

Accounting, on the other hand, involves the analysis of all that bookkeeping data. Where bookkeeping gets right into the nitty-gritty details of financial transactions, accounting uses all that data to look at the bigger picture. It’s an accountant’s role to read between the lines, to really understand what the digits are saying and make calculations and future projections based on that data.

How exactly do they do that, you ask? Well, though there are various kinds of accountants with different roles, essentially an accountant will analyse the overall performance and structure of a business, including financial statements, financial reports, budgets, and other exciting financial data. They then report their findings and offer financial advice to business owners, investors, or the government. 

Typical accounting services include:

  • Financial statements and reporting
  • Budgets and forecasting
  • Annual accounts including tax returns, tax minimisation, and trial balance
  • Analysing business performance and business structure
  • Advice and compliance

So to recap, when it comes to bookkeeping or accounting, the difference lies in the details. Bookkeepers work hard to collate and organise a business’s financial data, where accountants will then analyse and report on that data. We on the same page?

In saying that, however, the tasks that bookkeepers and accountants do will vary between businesses. There’s often overlap, and duties can change a lot from one business to another. For example, small business bookkeeping will likely involve some accounting tasks, such as reporting. As often is the case, it’s all relative.

What does bookkeeping entail and why is it important?

Oh, bookkeeping is important alright. Unfortunately for the average Joe, companies must keep records of income and expenses for 7 years to be compliant with the Inland Revenue Department (IRD). Yes, you read that right, and yes it’s a big fat number when we’re talking about how long to keep your receipts. Makes my bursting wallet full of pointless Pak’N’Save receipts look pretty good. 

Anyway, if that wasn’t enough, if you’re ever audited by the IRD and can’t cough up the records, there can be some pretty serious consequences.

So yes, we know it feels a little overkill to hang onto your lunch receipt from that business lunch two weeks ago, let alone seven YEARS ago. And we know it seems next level impossible to actually maintain that kind of pedantic record-keeping for the long haul - which is why we circle back to the Bookkeeper as the real hero of the business world.

Capes or no capes, Bookkeepers are saving business owners all over the globe by taking over the role of record and receipt-keeping, managing payroll services, invoicing, reconciliation, GST returns, and more. Bookkeepers can also hold business owners accountable, and play a huge part in keeping track of business operations and ensuring the books stay spic and span the whole way through. There’s no help like bookkeeping help.

Proper bookkeeping gives companies a reliable measure of performance. It provides the very basis for any strategic financial decision and allows business owners to set benchmarks for future revenue and income goals. If the bookkeeping isn’t up to date and accurate, then any financial data is meaningless, and can’t be used for effective management and decision making. I mean, it’s kind of hard to set goals when you don’t even know where you’re starting from, right?

If you’re still struggling to see the bigger picture, here’s why Bookkeepers are so important.

  • Maintaining Organised Records

Goodbye, unnecessary yet oh-so palpable stress! There’s nothing worse than the last-minute panic of trying to find that one crucial piece of business that you swear you remember but can’t actually, specifically remember. No more missed deadlines, no more last-minute sweats, no more small errors creeping through the books. No business can afford to make mistakes when it comes to finances, and regular bookkeeping can help to minimise room for error.

By keeping on top of your books, updating them regularly, and not leaving it to the last second (flashbacks straight to those old school days), you’ll be able to better maintain organised records. And over time, you’ll be finding those lunch receipts from your younger years in no time at all.

  • Easier to See Business Targets

Every business wants to grow, but poor financial records can be a serious ball and chain when it comes to growing at the speed you want. But then, without accurate data to analyse and base your predictions on, you’re pretty unlikely to nail your growth goals, and you’ll be pretty disappointed when you don’t hit the targets you set for yourself. A good feeling and a little bit of hope can only get you so far, no matter how pure and true that hope is.

The easiest way to avoid the bitter disappointment of failed dreams is simply to stay on top of your books, and keep regular financial records. That way, you can set achievable business goals based on real data, and achieve growth at the rate you’ve projected.

  • Gives You Extra Peace of Mind

If you thought unorganised books and looming tax deadlines were a lot to deal with, just wait until you’ve got unorganised books, looming tax deadlines, and then IRD breathing down your neck as well. Hello, unnecessary stress eating. You’ve been missed. As a business owner, the last thing you need on top of your day-to-day tasks are bookkeeping issues keeping you up at night.

With regular, thorough, and organised bookkeeping (we’re all tingling at the thought, right?) you can sleep easy knowing you’re not a part of the masses stressing over the numbers. Oh no, with accurate bookkeeping, you can bask in the satisfaction of knowing that your business’s financial information is ready and waiting to be reviewed, leaving you free to focus on other areas of your business. Save a smug little smile for IRD, will you?

Do I need a bookkeeper for my small business?

Unfortunately, though we love a quick and easy answer, it really does depend on you and your business - or rather your skillset, time, and money. If you’re a financial guru and bookkeeping wizard with a healthy chunk of time up your wizard sleeves, then DIY bookkeeping might be the way to go. It’ll save you some coin, and it’ll give you the confidence of knowing you’re in charge of your own books.

The reality is that most of us are not financial gurus, and even basic bookkeeping for freelancers is a leap above what we’re comfortable with. Mistakes are almost guaranteed, which usually always leads to further complications down the line. Bleak, isn’t it?

Alright, because we love a bullet point list, here’s a few questions to ask yourself when considering getting a Bookkeeper:

  • Do you have the discipline to keep records for 7 years for compliance purposes?
  • Will you have the time to do it on a regular basis to accurately track performance?
  • Would you be confident that your accounts are reconciled correctly, and you’re paying the right amount of tax (including GST & DED/Payroll)?
  • Would you prefer to spend your time on bookkeeping over doing what you do best?

If you answered no to any of the above questions, you may want to consider hiring a hero. Although in saying that, there’s always a caveat, isn’t there? If you have less than 25 transactions per month and aren't GST registered, it probably makes sense to do the bookkeeping yourself. Again, it will save you a bit of coin and shouldn’t take you as long as those with higher transaction targets.

However, if you’re a company, sole trader or are self-employed with more than 25-30 transactions per month, we’d suggest getting a bookkeeper, especially if you’re GST registered, as this can complicate things even further. Unless you’re an aforementioned financial wizard, of course, in which case, jog on.

When will I require an accountant?

If you’re a New Zealand business of any size wanting to improve your financial performance or feel that you need financial support in order to best grow your business, it could be time to speak to a chartered accountant. Accountants can help at various stages of growth in your business, whether you’re just starting out and are wanting to set up realistic financial growth targets, or whether you’ve been in business for years and are needing support to reassess your financial plans.

It’s an accountant's role to interpret the data your trusty Bookkeeper has been working hard to maintain, analyse what that means in terms of your company’s performance, and help to make future projections that will grow your business in the most effective way. If this sounds like exactly what you’re needing, but all you know about accounting you’ve learned from a 60-minute online accounting course you took four years ago, it might be an idea to leave this one to the professionals.

Alternatively, if you’re feeling good in terms of where your business is at and don’t think you need the financial help, but you’ve registered for GST, now may be a good time to speak to an accountant anyway. GST requires a minimum turnover of $60,000 for the previous twelve months, or a projected turnover of $60,000 over the next twelve months. So if you haven’t already, this is probably a good time to speak to an expert and get some solid financial advice for your business.

Especially for small businesses, accounting advice can go a long way in terms of setting up a strong financial plan that can start you on an upward trajectory for business growth. It’s important to have a solid understanding of your financial position so that you can focus on achieving your growth targets and giving your business the best possible chance to succeed. Because that’s what we’re all here for, right?

So, now that you’re well versed in the fundamental differences between a Bookkeeper and an Accountant, it’s time to continue this upward trend of financial enlightenment. If your world has been shaken in a big way with the realisation that you may just need a Bookkeeper or Accountant after all, why not book in a free consultation with us to talk things through? We’re always up for a chat, and without being too presumptuous, we may just be the financial wizards you’re looking for.

Danny Pritchard

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