What’s the difference between bookkeeping and accounting?

If you're a solo business owner, you've probably heard both terms: bookkeeping and accounting used interchangeably. Though they’re closely related, they aren’t the same thing.

Here’s a simple breakdown of what each one means, how they work together, and what you actually need to keep your business on track.

What is bookkeeping?

Bookkeeping is the process of recording and organizing your financial transactions. It’s the foundation of your business finances.

A bookkeeper helps you:

• Track income and expenses

• Categorize transactions correctly

• Reconcile your bank and credit card accounts

• Keep your records accurate and up to date

• Prepare reports like your Profit & Loss for tax time

In short, bookkeeping keeps everything organized so you know where your money is going and your records are ready when you need them.

What is accounting?

Accounting builds on the data provided by bookkeeping.

An accountant uses your financial records to:

• Analyze your business performance

• Prepare your tax return

• Offer financial advice or tax strategy

• Help with planning and forecasting

While bookkeeping is about maintaining accurate records, accounting is more about interpretation and decision-making based on those records.

So which one do you need?

As a solo business owner, you likely need both, but not at the same time.

Bookkeeping is something you need on a monthly basis to keep things running smoothly. Without it, your numbers won’t be accurate and your accountant won’t have a clean foundation to work from.

Accounting comes in when it’s time to file taxes or when you need strategic advice about the bigger picture.

The Bottom Line

Bookkeeping and accounting work hand in hand, but they serve different purposes. Bookkeeping keeps your records in order. Accounting helps you make sense of those records.

At Lume Bookkeeping, I focus on the bookkeeping side so your numbers are clean, organized, and ready for whatever comes next.