Financial Accounting vs Auditing: What’s the Difference?

Think accounting is the same as auditing? Think again. While they both involve the analysis of a business’s financial transactions, they aren’t the same. Accounting and auditing are two different financial processes, each of which works in a different way

What Is Accounting?

Accounting is the process of documenting and recording financial transactions associated with a business. Businesses make money, and they spend money. They make money primarily by selling products or services to their target audience. And businesses spend money on payroll, equipment, inventory, insurance and other expenses so that they can perform these sales operations.

Businesses must track both credit- and debit-based financial transactions. By tracking their financial transactions, they can prepare their taxes, cut costs and, ultimately, maximize their profits. This is where accounting comes into play. Accounting allows businesses to track their financial transactions using a set of formal guidelines or accounting principles.

What Is Auditing?

Auditing is the process of evaluating financial transactions, as well as accounting documents, for errors. Most businesses use generally accepted accounting principles (GAAP) when performing accounting. To ensure that their accounting documents comply with the GAAP, businesses may conduct an audit. They can audit their accounting documents while checking for errors such as unrecorded liabilities or unrecorded asset depreciation.

Reconciliation is an auditing process. Available in QuickBooks – as well as other accounting software products – it involves checking the transactions on a bank statement to those recorded in the accounting software. Each transaction should be listed on the appropriate bank statement and in the accounting software.

Differences Between Accounting and Auditing

Accounting and auditing aren’t the same. Accounting revolves around documenting and recording financial transactions. Auditing, on the other hand, revolves around checking financial transactions and accounting documents for errors.

Accounting and auditing also have different goals. The primary goal of accounting is to record all of a business’s financial transactions while following a set of guidelines or principles, such as the GAAP. The primary goal of auditing, conversely, is to check the accuracy of financial transactions and accounting documents.

Businesses may perform accounting and auditing either in-house, or they may outsource it. Regardless, accounting and auditing are essential financial processes. They are necessary for nearly all businesses. Accounting is all about documenting and recording financial transactions, whereas auditing is all about checking financial transactions and accounting documents for errors. They are different businesses-related financial processes.

What are your thoughts on accounting and financing? Let us know in the comments section below!

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