Industry newcomers tend to use the terms “bookkeeper” and “accountant” interchangeably, but there are a few important distinctions between the two.
Bookkeeping focuses on managing financial books by documenting transactions, managing accounts, and recording financial data. This includes responsibilities like delivering balance sheets and income statements, confirming account accuracy by preparing trial balances, reviewing documents, and posting entries into accounting software.
Accounting focuses on using that data to assess the financial health of a business and make data-driven business decisions. This includes responsibilities like overseeing a bookkeeper’s work to ensure accuracy, making adjustments to trial balances, generating financial statements, and producing financial reports that are needed to file business tax returns.
Below, we’ll take a closer look at bookkeeping vs accounting, their key differences, and how working with bookkeepers and accounts can benefit your small business.
What is bookkeeping?
Bookkeeping is the process of recording all financial transactions a business makes from its opening to its closing. This practice helps establish the company’s financial outcomes and allows owners to track where their money is going. Bookkeepers record transactions based on documentation such as:
Any other reports that indicate someone made a transaction
Bookkeeping has two main methods: single-entry and double-entry. Single-entry bookkeeping tracks the basics of a company’s spending and earnings, while double-entry bookkeeping tracks additional transactions such as assets, liabilities, and overall company financial health.
Regardless of the type of bookkeeping a company chooses, recording the day-to-day business financial transactions is an integral part of accounting.
What does a bookkeeper do?
A bookkeeper keeps track of day-to-day business finances, like recording transactions and managing general ledgers. Good bookkeepers are organized, skilled with numbers, and natural problem-solvers.
Common bookkeeper responsibilities include:
- Recording daily transactions: Bookkeepers review source documents and post journal entries into accounting software.
- Reconciliations: Bookkeepers reconcile bank accounts and review the general ledger to ensure that financial information posts to the correct accounts.
- Delivering reports: Bookkeepers deliver balance sheets and income statements.
- Producing invoices: Bookkeepers may be responsible for preparing and sending invoices to clients and customers. They will manage all invoices to stay on top of late payments and ensure the business is being paid on time.
- Managing payroll: Bookkeepers can help process payroll by managing employee pay and staying on top of tax payments and documents for small business employees.
- Monitoring cash flow: Bookkeepers keep an eye on day-to-day transactions to make sure a business has enough funds to perform day-to-day operations.
- Closing books: Bookkeepers confirm accuracy by preparing a trial balance to ensure they’re ready for tax time.
Advantages of working with a bookkeeper
Bookkeepers can benefit your business by freeing up more time in your schedule, minimizing financial errors, and generating accurate financial reports. Working with a bookkeeper can also help ensure your books stay clean and up to date so you’re always ready when tax season rolls around.
Some key benefits of hiring a bookkeeper include:
- Not missing unpaid invoices and bills
- Staying on top of cash flow issues
- Making tax season easier
- Making getting a small business loan easier
- Giving you back more time to dedicate to your business
What is accounting?
While accounting is similar to bookkeeping in that it involves documenting business financial transactions, the former process is more in-depth. It involves the summary, analysis, and interpretation of financial data.
Accounting also involves reporting these findings to tax collectors and regulators. It’s a process that tells the financial story of your business, including if your business is profitable or if you’re suffering a loss.
Bookkeeping is a foundational aspect of small business accounting. Since accountants use the information gathered by bookkeepers to prepare larger financial statements and reports, the accounting process wouldn’t be possible without the help of bookkeepers.
What does an accountant do?
Accountants use bookkeeping records to assess big-picture finances and make smart business decisions. They also provide insights about the company’s overall financial health to business owners and other stakeholders.
In general, an accountant’s role requires higher expertise and education. This individual usually holds an accounting degree and is registered as a certified public accountant (CPA). To use that title, CPAs must pass the CPA exam—which is a highly valued credential in the accounting industry.
Common accountant responsibilities include:
- Overseeing a bookkeeper’s work: Accountants help ensure the accuracy of a bookkeeper’s work, catch any discrepancies as they arise, and review accounting transactions within the books.
- Managing the bookkeeping process: Accountants make corrections to any clerical errors on the bookkeeping side and use these records to forecast a business’s health.
- Generating financial statements: Accountants make adjustments to the trial balance and generate the income statement, balance sheet, and cash flow statement.
- Performing financial audits: Accountants perform audits to analyze and verify all of a business’s financial records and statements.
- Preparing tax returns: Accountants produce the financial reports required to generate tax returns. During tax season, your accountant may produce the tax filings and send them to the IRS or work with a CPA firm that provides this service.
- Helping businesses understand their finances: Accountants can help businesses understand where their money is going and how to interpret the financial data provided. This can help businesses make smart financial decisions.
Advantages of working with an accountant
Most importantly, your accountant is a valued advisor who can help you with important decision-making. If you’re considering purchasing new equipment or taking out a line of credit, for example, your accountant can help you determine the financial ramifications your decision can have.
Some key benefits of hiring an accountant include:
- Preventing and reducing tax penalties and errors
- Helping you understand the financial health of your business
- Aiding in the growth of your business
- Saving you time and money
- Helping you understand tax laws and regulations in your state
The main differences between a bookkeeper and an accountant
Knowing the difference between bookkeeping and accounting can be tricky, especially with the interchangeability of the terms and how the duties can overlap. Here are a few key differences between bookkeeping vs accounting.
The largest difference between accounting and bookkeeping roles is the required credentials, or academic qualifications, for each.
- Bookkeepers aren’t required to have any specific certification or formal education
- Bookkeepers must understand basic and key financial topics and have an eye for accuracy
- Bookkeepers must also have basic skills such as organization, communication, and attention to detail
- Accountants must have a bachelor’s degree or higher in the field of accounting or finance.
- Accountants can attain professional certifications to grow their careers and earn a higher income, such as a CPA title.
- Accountants must also have an eye for accuracy and attention to detail as they oversee a bookkeeper’s work
If you already use specific tools to manage your books, you’ll want to discuss those tools with any bookkeepers or accountants you consider working with to ensure they’re familiar with them.
As discussed above, the main objectives of accounting and bookkeeping are similar but still different in many ways. Both disciplines work hand in hand to determine the financial health of a business. Below are the main objectives of an accountant vs a bookkeeper.
- Record transactions
- Maintain ledgers
- Detect any fraud or discrepancies
- Review the financial records that the bookkeeper prepared
- Analyze financial records to determine if funds are being misused or misallocated
- Analyze and report the financial information to all appropriate departments, institutions, and stakeholders within the organization
Bookkeeping and accounting also require different skill sets for each role, and while these skills can certainly overlap, there are some notable differences:
- Mathematics: Both bookkeeping and accounting include daily basic mathematics operations like addition and subtraction; however, accounting involves more complex operations such as percentages, ratios, and exponents.
- Detail: Both roles require great attention to detail. A bookkeeper’s job is to ensure that a business documents its records correctly for the accountant to analyze. Accountants not only need to ensure that the information the bookkeeper provides is correct, but they also need to be able to identify any inconsistencies or issues within the reporting.
- Problem-solving: Bookkeeping and accounting both require expert problem-solving skills. While bookkeepers need to be able to find discrepancies within reporting, the accountant must be able to resolve any issues and come up with solutions.
On average, a bookkeeper is usually less expensive to hire than an accountant. This is because an accountant’s responsibilities are usually more complex. However, the cost for both a bookkeeper and an accountant can differ based on things like:
- The average market price: How much a bookkeeper or accountant charges based on the area you live
- What services you need: What services you’re requesting and how much time it will take to complete these tasks
- The complexity of services: How challenging or complex your financial records are and if they’ll need more time to complete
Both bookkeepers and accountants may charge a flat rate or, more commonly, by the hour.
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