Bookkeeping vs. Accounting: What’s the Difference?
“What is the difference between bookkeeping and accounting?”
You may struggle to answer this question unless you are an accountant or bookkeeper, which is understandable. On the surface, both occupations seem to be quite similar: both bookkeepers and accountants deal with financial data and assist you in managing your money.
There is also some job ambiguity, with some bookkeepers in smaller companies performing accounting duties owing to resource limitations. Moreover, the advent of accounting software that can generate financial statements—a job usually reserved for accountants—adds to the uncertainty. That being said, you cannot undermine the importance of a strong accounting team in your company. In fact, a study showed that 82 percent of all businesses fail due to poor maintenance of books of accounts and resulting in negative cash flows.
Despite apparent similarities and changing work responsibilities, bookkeeping and accounting are worlds different. Bookkeepers record financial transactions at a high level, while accountants evaluate and interpret this data. Of course, this is an oversimplification.
In this blog, we’ve provided an extensive comparison between a bookkeeper and an accountant, which can help you determine if your company needs either one or both or none! So let’s get started!
The Role of A Bookkeeper
Bookkeeping in the conventional sense has existed for as long as trade has been — from about 2600 B.C. The duty of a bookkeeper is to keep detailed records of all money that comes in and goes out of the company. Bookkeepers record daily transactions in a uniform, easy-to-read format, which allows accountants to perform their duties.
Here are some examples of common bookkeeping tasks:
- Keeping track of financial transactions
- Debits and credits must be posted.
- Creating invoices
- Payroll administration
- Keeping ledgers, accounts, and subsidiaries in order and balancing them
A bookkeeper’s main responsibility is to maintain the general ledger, which is a document that records the amounts from sales and expense receipts. To monitor its entries, debits, and credits, ledgers may range in complexity from a piece of paper to sophisticated accounting software such as QuickBooks and Xero.
Each sale and purchase made by your company must be recorded in the ledger, and some transactions will necessitate documentation.
To become a bookkeeper, bookkeepers require basic graduation with accountancy courses, which will help them stay up-to-date on financial subjects and terminology and strive for accuracy. A bookkeeper’s job is usually supervised by an accountant or a small company owner. A bookkeeper, on the other hand, is not an accountant and should not be considered one.
The Role of An Accountant
Based on the financial data recorded by the bookkeeper, an accountant offers essential business insights and financial recommendations to company owners. Here are some examples of common accounting tasks:
- Data verification and analysis
- Reporting, auditing, and producing financial reporting documents such as tax returns, income statements, and balance sheets
- Forecasting company trends and providing growth prospects.
- Assisting the company owner in comprehending the significance of financial choices
- Making changes to entries
The accounting process generates reports that bring together important elements of your company’s finances to provide you with a comprehensive picture of where your finances stand and what they mean, what you can and should do about them, and where you may anticipate your business to go in the near future.
There is a distinction to be made between an accountant and a certified public accountant (CPA). Although both may prepare your tax returns, a CPA knows more about tax laws and can represent you before the IRS if you are audited.
Accountants are often required to have a degree in accounting or finance in order to hold the position. They may then go on to get other qualifications, such as the CPA. Accountants may also be employed as bookkeepers, which isn’t recommended as you’d be overpaying for the activity.
Can Bookkeepers act as Accountants?
As bookkeeping is just one aspect of accounting, bookkeepers usually don’t have sufficient knowledge to act as full-fledged accountants. Moreover, a bookkeeper cannot use the title CPA (Certified Public Accountant) unless he has earned the certification. A CPA is obtained by fulfilling certain educational and employment prerequisites as well as passing a test. The requirements for becoming a CPA differ by state.
Can Accountants Act As Bookkeepers?
Yes, and they do. Since some small businesses may not have an official bookkeeper, an accountant will take on the duties of a bookkeeper as well. Alternatively, the accounting responsibilities may be delegated to an accountant with less work experience.
Differences Between Bookkeeping and Accounting
Following are the differences between bookkeeping and accounting:
|Accounting is built on the basis of bookkeeping.||Accounting prepares financial reports and statements based on the information supplied by bookkeeping.|
|Bookkeeping is a component of the overall accounting system.||Accounting extends beyond bookkeeping and has a wider scope than bookkeeping.|
|The outcome of the bookkeeping procedure is input for accounting while maintaining a chronological record of financial operations and transactions.||Accounting produces financial accounts that allow for informed choices and judgments.|
|A bookkeeper is a person who is in charge of bookkeeping.||An accountant is a person in charge of accounting.|
|Bookkeeping is a clerical job. Bookkeepers are not required to have any particular expertise or skills.||Accounting requires accountant abilities as well as an understanding of different accounting procedures and regulations.|
|The bookkeeping procedure does not include the preparation of financial statements.||The accounting procedure is used to create financial reports and statements.|
When should you hire an accountant or a bookkeeper?
It may be tough to decide the best moment to employ an accounting expert or bookkeeper or even whether you need one at all. While many small companies employ an accountant as a consultant, you have many alternatives for handling accounting duties.
Some small company owners, for example, conduct their own accounting using software recommended or used by their accountant, submitting it to the accountant on a weekly, monthly, or quarterly basis for action. Other small companies hire a bookkeeper or maintain a small accounting department with data entry clerks who report to the bookkeeper.
When searching for a certified bookkeeper, you must first determine if you want to engage an individual consultant, a firm, or a full-time employee if your company is big enough. If you’re looking for high-quality professional bookkeepers, you could consider giving us a call at CharterCPA.
As bookkeepers are not obliged to have a professional qualification like accountants, it may take more background investigation to locate a good one, Therefore depending on proven and testified accounting and bookkeeping services like CharterCPA is the easiest and safest choice for any business.
Still unsure if you need to employ someone to assist you with your books? Here are three indications that it is time to engage a financial expert.
You’re confused about your taxes
If your taxes have grown too complicated for you to handle on your own, due to numerous income streams, overseas interests, many deductions, or other factors, it’s time to employ an accountant. An accountant may save you hours of time and assist you in staying on top of key issues like payroll, tax deductions, and tax filings.
You’re spending more time with your accounts rather than on company development
You are doing your company a disservice if you spend so much time on accounting chores that you are unable to concentrate on expanding your business or keeping current clients satisfied. You may be able to earn more money in the long run if you leave the accounting to professional accounting firms like CharterCPA and concentrate on your development possibilities.
Your company is growing at a great pace
Doing your accounting alone may be great while your company is small, but if it is expanding, it may be an indication that it is time to hire someone to assist you. You might begin by hiring a bookkeeper to balance your accounts once a month and a CPA to manage your taxes. Then, if your accounting requirements grow, you might hire someone.
Whether you employ an accountant, a bookkeeper, or both, it’s critical that the people are competent, which you may determine by requesting client references and checking for credentials.
When your company is expanding, you’re spending too much time on non-growth parts of the business, or your taxes and finances have become too complicated for you to handle on your own, it’s time to seek the assistance of a financial expert. Now that you understand the differences between bookkeeping and accounting, it’s time to determine which is best for your company.
That being said, by choosing CharterCPA, you don’t need to make that choice. We provide comprehensive outsourced accounting services, including bookkeeping. This enables you to enjoy the luxury of having a professional accountant and a bookkeeper without worrying about the hassles that come with employing both in-house. So, contact our professionals to get a free consultation today!