When thinking about the difference between bookkeeping and accounting, many people are hardpressed to be able to nail the difference between the two.
While yes, bookkeepers and accountants share similar goals, they support your business’s financial cycle in different stages.
You can’t have one without the other. They both come with different responsibilities and educational backgrounds and will help your business to thrive in different ways.
To put it simply, bookkeeping is more of a transactional and administrative job. It is concerned with the recording your financial transactions. If you bought a laptop for your business, you’ll note that in your bookkeeping. If you sold something to a customer, you’ll note that in your bookkeeping.
Accounting is more subjective. This gives you insights into the financial health of your business which is based on the records from your bookkeeping. Essentially, your accountant needs the work from your bookkeeper in order to understand the financial health of your business.
So let’s explain the functional differences between the two, as well as the different roles of both bookkeepers and accountants.
Let’s look at the tasks a bookkeeper and accountant will perform to get an idea of how they differ.
Bookkeeping tasks
Bookkeeping is the process of recording every daily transaction in a consistent and simple way. It is a key component when it comes to gathering the financial information that is needed to run a successful business. If you don’t know what’s coming in and coming out, you can’t predict the success and profitability of your business.
A bookkeeper will:
Record and categorize all daily payments and expenses
send out invoices and keep a record of all received payments
ensure bank reconciliations are conducted every month
create monthly financial statements (balance sheets, cash flow statements, income statements etc)
process employee payroll
get the books ready for the accountant
ensure all year-end financial and tax documents are provided to the accountant
One of the main components of the bookkeeper is to maintain a general ledger. This is a document where the bookkeeper records the amounts from both sales and expense receipts, also known as posting. Therefore, the more sales that are made, the more often the ledger is posted. This can be created in many different ways, from a spreadsheet to a specialized software or simply a lined sheet of paper if preferred.
Now in terms of the complexity of the bookkeeping system, this completely depends on both the size of the business and how many sales and transactions are happening every day, as every sale and purchase needs to be recorded. Therefore the complexity of a bookkeeper for a small business selling only a few products a day is going to look a lot different to a major company selling hundreds to thousands of products per day.
Accounting tasks
Accounting is more of the next step after bookkeeping, as an accountant needs to work with the data compiled by the bookkeeper to produce the accompanying financial models. This makes the accounting process more subjective than that of the bookkeeping process.
An accountant will:
Prepare adjusting entries (any expenses that weren’t recorded by the bookkeeper)
Analyze the cost of all operations
give advice to business owners on financial decisions that have been or will be made
analyze and review all financial statements
assess the financial health of the business and create financial forecasts for the future
perform audits
all things tax, from tax planning to tax advisory and filing tax returns
An accountant will analyze the financial reports which help to make business decisions. This allows the business to have a better understanding of their profits and an awareness of their cash flow. If there’s more money coming out than what’s going in, something needs to change and the accountant will be able to pick up on this.
Accounting turns the information from the bookkeeper into the bigger picture, allowing the business the see and understand the financial path they’re heading down. If the business is in need of strategic tax planning help or is looking to analyze their financial positions, they will look to the accountant for this information.
What are the differences between the two roles?
While bookkeepers and accountants sometimes do the same work, they have very different skill sets. To put it simply, a bookkeeper will record transactions, helping to keep the business financially organized while an accountant will provide the analyses and consultations of the business as well as being qualified to advise on all things tax.
A bookkeepers credentials
If you’re looking to become a bookkeeper, chances are you’re not going to need any formal education. However, if you want to be a successful bookkeeper, you need to be a stickler for accuracy and of course have a high understanding of key financial topics. A bookkeeper will more than likely have their work overseen by the accountant or the business owner of the business they are creating the books for. Because of this, a bookkeeper cannot be called an accountant.
An accountants credentials
Unlike a bookkeeper, an accountant is going to need a formal education. A bachelor’s degree in accounting or a finance degree will more than likely do the trick.
An accountant is also eligible to acquire additional certifications such as becoming a Certified Public Accountant (CPA) yet in order to obtain this title, extra studies and exams must be taken.
So let’s sum it up.
Both the bookkeeper and the accountant are vital to the success of a business. The bookkeeper is in charge of organizing financial records and ensuring properly balanced finances while an accountant will focus on financial strategies and ensure accurate tax filing. Mixed together, both are needed for long-term success.
While some business owners may choose to manage their finances on their own, others choose to hire professionals, leaving more time for the owners to focus on growing their business without having to worry too much about the numbers. However, no matter the decision you choose for your business, never underestimate the importance of both a bookkeeper and an accountant when it comes to your success. They’re both different and they’re both as vital as each other.