Unless you’re a bookkeeper or accountant by profession, you rarely don’t spend time thinking about the two (but hey, no shame if you do). Similarly, you probably don’t know that there’s a distinction between bookkeeping and accounting.
That is because, for most of you, bookkeeping and accounting are the same—well, not entirely wrong. Indeed, bookkeeping and accounting are often confused with each other because of their interrelations in financial reporting.
As a small business owner, you need accuracy and up-to-date in your financial data so you can make good business decisions and ensure you have a healthy cash flow.
But as your business grows and you take on more customers, vendors, and employees, keeping track of how much money you have coming in and going out of your business gets complex – and time-consuming.
When the accounting tasks for your small business are too much to handle by yourself, it’s time to hire help. But do you need an accountant or a bookkeeper? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are some distinct differences.
Working with a bookkeeper and an accountant often overlaps, as bookkeeping is a part of the accounting process.
A bookkeeper keeps records of a company’s daily financial transactions such as sales, payroll, payment of bills, etc, and classifies them. They focus more on accurate record-keeping with less focus on analytics.
An accountant relies on the information that is being provided by the bookkeeper. They typically review every financial statement prepared by a bookkeeper.
An accountant is needed to take the next step and analyze, review, and interpret financial information for the company. They turn the records into reportable and presentable data that is used for decision-making and forecasting financially.
“Bookkeeping is designed to generate data about the activities of an organization, Accounting is designed to turn data into information,” said D’Arcy Becker, chair and professor of accounting at the University of Wisconsin Whitewater Department of Accounting.
Herein, we discuss bookkeeping vs. accounting, including the differences between the two, how they overlap, and how they are evolving. Let’s go!
Unsure what bookkeeping is about? For a layman, the process of recording day-to-day financial transactions in a consistent manner is defined as bookkeeping. It is the process of the daily record-keeping of all a company’s financial transactions.
Bookkeepers record the sales, expenses, cash, and bank transactions of the business as well as payments in a general ledger.
One of the most important habits for a new business is recording transactions in your general ledger. Recording these transactions is also known as posting. A bookkeeper may also generate invoices and/or complete payroll for the company.
A day in the life of a bookkeeper varies according to the size of the company they work for, along with the types of accounts they manage. But they work to make sure the financial data is accurately entered, processed, and submitted.
Tasks are undertaken by a bookkeeper :
- Prepare income statements, balance sheets, cash flow statements, and statements of total recognized profits and losses.
- Process the payroll
- Pay contractor and supplier invoices
- Monitor the debts
- To Record the incoming cash
- Reconcile the accounts
- Maintain the annual budget
- Report issues as they arise
- Assist accountants come tax season.
All in all, bookkeeping is an important task, having a good bookkeeper ensures many benefits like giving you peace of mind knowing your books are up-to-date and helping you make better financial decisions.
Accounting basically deals with the financial health of a business. It involves recording financial transactions, along with storing, retrieving, summarizing, and presenting the results in a variety of reports and analyses.
An accountant can assess the assets, cash flow, and even the liabilities and future position of an organization. One of the biggest differences between accounting vs. bookkeeping is that accounting defines a wider set of responsibilities and refers to the process of financial reporting.
The primary goal of accounting is to provide key financial information to business owners, managers, and investors so they can make informed, strategic business decisions for the future.
To make this possible, accountants thoroughly analyze and interpret financial information to create advanced reports on how the business is performing currently and what can be expected further.
“Accountants look at the big picture,, “wrote John Tracy in his book ” Accounting for Dummies“). Tracy explains, “[They] step back and say, ‘we handle a lot of rebates, we handle a lot of coupons – how should we record these transactions too?
Do I record just the net amount of the sale or do I record the gross sale amount as well?’ Once the accountant finalizes how to handle these transactions, the bookkeeper carries them out.”
Accountants are like financial doctors—they look at symptoms (or financial information) and prescribe something so businesses can improve their financial health.
Tasks are undertaken by an accountant:
Prepare and analyze financial statements,
- Analyze the operations costs and complete the income tax returns.
- Record the expenses that haven’t been recorded by the bookkeepers.
- Supervise bookkeepers’ work to ensure that they accurately record and categorize transactions.
- Help business owners understand the financial health of their business. and inform them strategically.
|Accurately record and categorize financial transactions||Prepare and adjust entries|
|Post debits and credits||Prepare financial statements|
|Produce and send invoices||Complete income tax returns|
|Complete payroll||Tax strategy and tax planning|
|Record keeping||Financial forecasting|
|Maintain and balance subsidiaries, general ledgers, and historical accounts.||Financial analysis and management|
A bookkeeper needs to have a good grasp of finances in order to know which details to record. They must be meticulous, accurate, and well-organized. Ideally, they are knowledgeable about certain key financial topics.
Yet, formal education isn’t a requirement. Although, most bookkeepers have an associate’s degree.
In order for someone to call themselves an accountant, they must have a bachelor’s degree in accounting. Some people with a finance degree might also call themselves an accountant.
Accountants are able to earn additional professional certifications. Those who have the right education and enough experience can obtain the title of Certified Public Accountant (CPA) by passing an exam(In India it’s Chartered Accountant or CA). This is a common accounting designation.
Do you need a bookkeeper or an accountant?
Well, think of it as the difference between hiring a carpenter and an architect when building a house.
An accountant will help you get a clear idea of the big picture of your financial situation. He or she will give you valuable, actionable advice. Your accountant will also file your company’s taxes and create important financial documents.
When tax season is over, an accountant can still be valuable in helping you choose the right financial strategies especially if you are a small business or entrepreneur.
On the flip side, a bookkeeper will keep the wheels turning. He or she will make sure employees get paid, fill out the right forms, file all your company’s paperwork, submit invoices, and pay the bills as well as track all your expenses.
The bookkeeper has to be ready with all the information recorded correctly in the right software. when tax season comes around.
It’s never too early to engage a finance professional. Business owners that hire accounting support in the early stages of their growth, rarely regret it.
An accounting professional will help you create a plan; ultimately saving you time and money in the future and reduce your workload.
Usually, the support of a bookkeeper or accountant will free up your time, allowing you to focus on the development of your business. Now that you understand more about accounting and bookkeeping services for your business, you’ll be in a better position to make the decisions for its financial future.
You can always hire a bookkeeper to manage things on a day-to-day basis and an accountant to oversee everything, offer advice, and handle your taxes.
Rather than looking at it as an “either/or” situation, consider how you can put each to use to help in the growth of your business and find better financial solutions You can figure out how you can employ a team that will work together for the benefit of your business.
Sometimes, The best option here is to adopt virtual bookkeeping services that can give you a comprehensive solution to your business finance needs.
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