The two terms have become interchangeable in many ways, but accounting and bookkeeping are very different. Both are necessary for any business. Keeping meticulous financial records is all the more important for grant recipients who must remain compliant with the conditions of their award.
Here’s what to know about accounting and bookkeeping, so you can continue your project without financial worry.
What is Bookkeeping?
Bookkeeping is a subset of accounting. It’s the practice of recording a company’s transactions, including:
- issuing and recording invoices and receipts
- paying accounts and processing payroll
- tracking inventory changes, and
- otherwise tracking cash flow.
It happens on a regular basis, whether that’s daily, weekly, or monthly.
Bookkeeping doesn’t produce financial statements, because it doesn’t include accruing or deferring expenses or revenue. That’s the key difference between bookkeeping and accounting, which adds in these accruals and deferrals, and more.
What is Accounting?
On top of bookkeeping and accruals and deferrals, accounting involves a broader overview of a company’s finances, and a longer-term strategy. Accounting includes:
- tracking accounts themselves
- setting up and using a general ledger
- making financial statements and writing reports based on financial information
- creating budgets and tax returns
- archiving records, and
- destroying sensitive documents that are no longer required under law.
Where bookkeeping is repetitive and fairly predictable, accounting is all about interpretation, classification, analysis, and reporting. Bookkeeping shows figures, while accounting provides the data and context needed to make business decisions based on an organization’s financial situation.
Accounting and Bookkeeping for Grant Winners
For organizations funded through grant money, accounting is vital. Most awardees are obligated to show financial statements, that are thorough and accurate, on a regular basis. They have to account for each dollar spent from grant funding so the funders know it is being used correctly. There’s always the chance of audit or review, and an organization’s financial policies need to be written in a way that ensures compliance, transparency, and accuracy.
Bookkeeping is, of course, a part of this system, too, and should be undertaken by someone who understands the impact of non-dilutive funding, and the need to track this funding accurately.