The two words are often used as if they mean the same thing. They are two stages of the same job: bookkeeping creates the record, and accounting uses it.
What bookkeeping covers
Bookkeeping is the regular work of recording what happened in the business:
- Entering sales, purchases, expenses, receipts and payments
- Reconciling the books with bank, card and UPI statements
- Keeping track of who owes you and whom you owe
- Maintaining stock and fixed asset records
- Closing each month with a trial balance
What accounting covers
Accounting takes those records and turns them into information and filings:
- Preparing the profit and loss account, balance sheet and cash flow statement
- Adjustments such as depreciation, provisions and prepaid expenses
- Computing income tax and preparing returns
- Explaining the results: margins, costs, cash flow and trends
- Working with auditors, banks and investors
How they depend on each other
Financial statements can only be as accurate as the entries behind them. When bookkeeping falls behind, accounts are rebuilt in a hurry at year-end, errors go unnoticed, and GST and income tax figures stop agreeing with each other. That is usually when notices arrive.
Which does a small business need?
Both. Every business needs bookkeeping through the year, and at least annual accounting for tax returns. Most owners also benefit from a monthly review of the numbers. Handing both to one team means the people preparing your returns already know how every figure was arrived at.
This guide is general information, not professional advice for your situation. Rules and due dates change; talk to us before acting on it.