What is the difference between
Bookkeeping and Accounting?
Both bookkeeping and accounting play crucial roles in the administration of business finances. Both professionals have expanded their services, leading to a lot of overlap between the two tasks. However, there are also important differences between them.
What Is Bookkeeping?
Bookkeeping is the daily financial tracking of all of your daily financial transactions. The bookkeeper of a business might choose to use online bookkeeping software to track everything.
What Is Accounting?
Accounting is for trained professionals who can give a fuller summary of your company’s financial realities. Accountants rely on financial statements from bookkeepers to do their work, but they also look for larger trends and the way money works across the business.
Bookkeeping vs Accounting: Key Differences
Both bookkeepers and accountants need to be comfortable working with numbers all day. Bookkeepers need to identify problems with daily expenses and ensure all data is accurately recorded.
Bookkeeper Duties
Bookkeepers are extremely involved in daily company operations. They need to be involved in every process where payments occur. Bookkeepers must understand all financial details in the company to identify any inconsistencies.
Accountant Duties
An accountant needs strong and accurate bookkeeping to do their work. However, their work is different. They look at all of the financial details of a company so they can make larger decisions about how the business operates.
Accountants advise leadership on how to make more strategic financial changes that save the company money or generate more profit. For some of the businesses that they do, accountants also need to be registered certified public accountants (CPAs).
Common Roles in Accounting
On the other hand, an accountant uses financial reports from the bookkeeper to do other kinds of analysis work:
- Budget management and changes
- Managing tax filing and returns
- Analyzing and advising business operations
Accountants are largely responsible for the financial health of a business. If they notice expenses are going over budget or under budget, they can look into what’s causing this discrepancy and make recommendations to resolve these problems.
Common Roles in Bookkeeping
In addition to daily finance tracking, bookkeepers manage the following process:
- Managing payroll for employees
- Tracking invoices from vendors, contractors, and more
- Keeping track of bill payments
The bookkeeper should be able to answer all questions about daily finances and the status of payments.
The function of bookkeeping, and how it fits into accounting
Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to gathering the financial information needed to run a successful business.
Bookkeeping comprises:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Preparation of financial statements (balance sheet, cash flow statement, and income statement)
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
- Completing payroll
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sales and expense receipts. This is referred to as posting. The more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or even a lined sheet of paper (although we wouldn’t recommend it!).
The complexity of a bookkeeping system often depends on the size of the business and the number of transactions completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The IRS lays out which business transactions require supporting documents on their website.
The transactions that you record in your bookkeeping are also the foundation of your accounting. Accounting practices require the pulling and analysis of financial data—in other words, everything that’s recorded in your ledger, among other financial transactions like loan disbursements or payments.
The function of accounting
Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial models.
The accounting process is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
- Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
- Reviewing company financial statements
- Analyzing costs of operations
- Completing income tax returns
- Aiding the business owner in understanding the impact of financial decisions
A key part of the accounting process is analyzing financial reports to help you make business decisions. The result is a better understanding of actual profitability and an awareness of cash flow in your business.
Accounting turns the information from the general ledger into insights that reveal the bigger picture of the business, and the path the company is progressing on.
Business owners will often look to accountants for help with strategic tax planning, analysing their financial position, forecasting, and tax filing.
Frequently asked questions
What is the difference between bookkeeping and accounting and auditing?
A bookkeeper and an accountant have to record the transaction in the books of accounts while an auditor has to check and verify such transactions and accounts and send a report to the persons who appointed him.
What can an accountant do that a bookkeeper can't?
Accountants are in charge of approving year-end accounts. Bookkeepers can assist with preparing financial information, but accountants are responsible for ensuring accuracy, identifying errors, and fixing them.
Which is higher accounting or bookkeeping?
Accounting jobs typically offer higher pay than bookkeeping jobs. This is because accounting roles involve more skills and responsibilities. These include financial analyzing, planning, and tax compliance.
Can a bookkeeper be called an accountant?
Bookkeepers record a business's day-to-day financial transactions. Accountants focus more on the overall financial strategy. The two careers are similar, and accountants and bookkeepers often work side by side. These careers require many of the same skills and attributes.
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