Every business, from a lemonade stand to a bank, does the same basic thing over and over: it takes in money and pays out money. If nobody kept track, the owner would have no idea whether the business was making money, whether it could pay its bills, or whether it was worth anything at all. Accounting is the system that keeps track — it turns thousands of individual transactions into a small number of reports that tell the story of the business in dollars.
Bookkeeping vs. Accounting
People often use "bookkeeping" and "accounting" as if they were the same word, but they describe two different jobs. Bookkeeping is the mechanical, day-to-day part: recording each transaction in the right place, in the right amount, on the right date. Accounting is the bigger job that bookkeeping feeds into: controlling, analyzing, and interpreting the financial information once it has been recorded. A bookkeeper enters that $85 of office supplies were bought on account; an accountant looks at three years of numbers and tells the owner whether the business can afford to hire another employee.
| Bookkeeping | Accounting |
|---|---|
| Records transactions as they happen | Designs the system that records them |
| Follows fixed rules and procedures | Analyzes and interprets the results |
| Produces raw data (journals, ledgers) | Produces reports and advice for decisions |
| Can be done with little training | Requires judgment and often a professional designation |
Who Uses Accounting Information?
Accounting information is written for an audience, and that audience splits into two groups. Internal users work inside the business and use the numbers to run it day to day. External users are outside the business but still have a stake in how it is doing, so they read the same reports from a distance.
- Owners — is the business profitable enough to keep running?
- Managers — which products or departments are worth investing in?
- Employees — is my job secure? Can the company afford a raise?
- Creditors and banks — will this business be able to repay a loan?
- Investors — is this a good place to put my money?
- The Canada Revenue Agency (CRA) — how much income tax and HST is owed?
- Potential buyers — what is this business actually worth?
Notice that the diagram is a loop, not a straight line: transactions get recorded, summarized into statements, and the statements shape the next round of decisions and transactions. Every topic in this course is really about one piece of that loop.