Bookkeeping vs accounting: what's the difference?

Bookkeeping is recording what happened: every sale, purchase, payment and transfer, sorted into the right account and checked against the bank. Accounting is what's done with those records: adjusting them at year-end, preparing financial statements, filing tax returns and advising on decisions. Bookkeeping happens every week or month. For most small businesses, the accounting happens mostly once a year.

They need each other. An accountant can only work from the records they're given, and books that are wrong produce a tax return that's wrong. Good bookkeeping is also what keeps the accountant's bill down, because time spent fixing records is billed at an accountant's rate.

Side by side

	Bookkeeping	Accounting
The job	Record and organize transactions	Adjust, interpret and report on them
How often	Weekly or monthly	Mostly at year-end, plus advice during the year
Typical tasks	Categorizing transactions, reconciling accounts, invoices and bills, receipts, GST/HST figures	Year-end adjustments, CCA, financial statements, income tax returns, tax planning
Output	A general ledger, reconciliations, a trial balance	Financial statements, the T2 or T1 return, advice
Who does it	The owner, a bookkeeper, or software	Usually a CPA
Credentials	Not a regulated occupation	CPA designation, overseen by provincial CPA bodies

Job Bank lists bookkeeping as an occupation that's not regulated in Canada. Anyone can call themselves a bookkeeper. Accountants who sign off on statements generally hold one of the CPA designations, and the work is regulated in some provinces. Either way, ask about experience and references.

What bookkeeping covers

The day-to-day record of the business:

• Recording transactions. Every deposit, card charge, cheque and transfer goes into an account in your chart of accounts: sales, rent, fuel, GST/HST collected, and so on.
• Splitting out GST/HST. On every sale and purchase, so the return is a matter of adding up.
• Reconciling. Checking each bank and card account against its statement every month. See how to reconcile a bank account.
• Invoices and bills. Sending invoices, tracking who owes you, recording what you owe suppliers.
• Keeping receipts attached to the transactions they support.
• Separating personal from business. Personal spending goes to owner's draw or the shareholder loan, not expenses.
• GST/HST return figures. Often prepared by the bookkeeper, and filed by the owner, bookkeeper or accountant.
• Payroll, if there are employees: pay, deductions and remittances.

The output is a set of books that agree with the bank, ready for someone to report from.

What accounting covers

Turning those records into reports and returns:

• Year-end adjustments. Entries the bookkeeping doesn't usually make: capital cost allowance on equipment and vehicles (CCA explained), accrued expenses, prepaid amounts, and the personal-use share of a vehicle or home office.
• Financial statements. The balance sheet and income statement for the year. For a corporation, these are reported to the CRA in GIFI codes, the CRA's standard list of financial statement items.
• Income tax returns. The T2 for a corporation, or the T1 with Form T2125 for a sole proprietor.
• Tax planning. Salary vs dividends, when to buy equipment, whether to incorporate, instalments.
• Assurance, if a bank, investor or landlord asks for statements with an accountant's review or audit.

Who does what at year-end in Canada

This is where the line matters most. A typical split for a small business:

The bookkeeper (or you)

1. Records every transaction up to the last day of the year.
2. Reconciles every bank account, credit card and loan to its year-end statement.
3. Lists who owes you (receivables) and who you owe (payables) at year-end.
4. Counts inventory, if you carry it.
5. Lists large purchases (equipment, vehicles, computers) with invoices, so the accountant can add them to CCA.
6. Clears the "uncategorized" or "ask my accountant" account, so nothing is left unexplained.
7. Hands over a trial balance, or a profit and loss and balance sheet, plus the supporting records.

The year-end bookkeeping checklist goes through this in detail.

The accountant

1. Reviews the books and asks about anything that looks off.
2. Makes the year-end adjusting entries, including CCA.
3. Prepares the financial statements.
4. Prepares and files the tax return, and any T4 or T5 slips if you haven't had them done.
5. Tells you what you owe and when, and what to change for next year.

The deadlines they work to

• Corporations: the T2 return is due within six months of the year-end. A December 31 year-end means June 30. The tax itself is due sooner: generally two months after year-end, or three for a Canadian-controlled private corporation that claimed the small business deduction and meets the other conditions.
• Sole proprietors: file by June 15, but pay any balance by April 30, per the CRA's individual due dates.
• T4 and T5 slips: by the last day of February for the previous calendar year.
• GST/HST: depends on your filing frequency. See how to file a GST/HST return.

Give the accountant your records early. Books that arrive in the last week before a deadline get rushed, and rushed work is where mistakes and extra fees come from.

An example of the handover

A two-person landscaping corporation in Ontario has a December 31 year-end.

The owner's bookkeeping, done monthly through the year, gives the accountant on January 31:

• Revenue for the year: $412,000, reconciled to deposits
• Expenses: $318,500, categorized, with receipts attached
• Bank and card accounts reconciled to December 31
• Receivables of $14,200 (three customers) and payables of $6,800
• A list of purchases: a $38,000 trailer and a $2,400 laptop, with invoices
• Personal spending of $3,150 posted to the shareholder loan

The accountant's work from there:

• Adds the trailer and laptop to their CCA classes and works out the year's CCA
• Accrues a $4,500 December invoice from a subcontractor that arrived in January
• Prepares the financial statements in GIFI codes
• Files the T2 well before June 30, and advises on salary vs dividends for the coming year

Because the books were current, that's a few hours of accounting work. If the owner had arrived with a shoebox of receipts and twelve unreconciled bank statements, the accountant would have done the bookkeeping too, at accountant rates.

Do you need both?

• Very simple sole proprietor: you might keep your own books and file your own T1. Plenty of people do.
• Most small businesses: do the bookkeeping yourself (or with software, or a bookkeeper) during the year, and pay an accountant at year-end.
• Corporations: almost always need an accountant for the T2 and financial statements, even if the bookkeeping is done in-house.

How much does a bookkeeper cost? covers what the bookkeeping side costs if you hand it off.

Where Spark Books helps

Spark Books does the bookkeeping side. You upload bank and card statements, it sorts each transaction into a Canadian chart of accounts with the GST/HST split out, keeps double-entry books, matches receipts, prepares the GST/HST return figures, and at year-end gives you one download with what your accountant needs, mapped to the CRA's forms. It doesn't do the accounting side: no CCA, no financial statements, no tax returns, no filing. That's still your accountant's job, and Spark's aim is to hand them books that don't need fixing first. It's free, with no card.