Bookkeeping, accounting, and tax preparation: what each one covers

Three related but different services

Small business owners often use these terms interchangeably. Knowing the difference helps you hire the right people and avoid paying a tax professional to fix bookkeeping.

Bookkeeping

Bookkeeping records and organizes day-to-day transactions: categorizing income and expenses, reconciling bank and card accounts, tracking receivables and payables, and keeping documents in order. It is ongoing, usually monthly.

Accounting

Accounting turns those records into information: financial statements, month-end adjustments, accruals, management reports, and analysis that supports decisions such as pricing, hiring, and cash planning.

Tax preparation

Tax preparation uses the books to prepare and file returns. Enrolled Agents and CPAs are licensed to prepare returns and represent taxpayers before the IRS, and they can advise on planning opportunities and compliance obligations.

What most small businesses need

A typical setup combines monthly bookkeeping, quarterly or monthly financial statements, and annual tax preparation, with access to an Enrolled Agent or CPA for questions during the year.

• Monthly: bookkeeping and reconciliations
• Monthly or quarterly: financial statements and review
• Annually: business and owner tax returns
• As needed: advice calls and planning meetings

Important

This article is general information. Tax obligations depend on your entity type, state, and circumstances, so confirm your situation with an Enrolled Agent or CPA.