Bookkeeping vs Accounting – What’s the Difference and Why Does It Matter?
Understanding the distinction between bookkeeping and accounting is crucial for businesses of all sizes. Despite both being integral to the financial functioning of a business, they each have unique roles and duties to perform. Read on, as we delve deep into the topic of bookkeeping vs accounting, exploring the difference between bookkeeping and accounting, examining the roles of a bookkeeper vs accountant, describing bookkeeping and accounting services and much more.
What Does a Bookkeeper Do?
Bookkeeping forms the foundation of a firm’s accounting system. A bookkeeper is responsible for the accurate recording of all the financial transactions that a business makes – a process that includes purchases, sales, receipts, and payments. In other words, a bookkeeper is the record keeper who ensures all transactions are dated, recorded, and categorized correctly.
Duties of a Bookkeeper
- Documenting financial transactions
- Managing invoices and ensuring they are paid on time
- Reconciliation of accounts
- Carrying out payroll duties
- Preparing initial financial statements
What Does an Accountant Do?
While bookkeeping involves the recording of financial transactions, an accountant’s role revolves around interpreting, classifying, analysing, reporting, and summarizing this financial data. They use the records compiled by bookkeepers to evaluate the financial health of a business. They may also strategize and make financial forecasts to guide the business’s future.
Duties of an Accountant
- Analyzing costs of operations
- Performing audits and financial analysis
- Completing tax returns
- Creating reports for business owners
- Providing financial forecasting and risk analysis
Difference between Bookkeeping and Accounting
The line separating bookkeeping and accounting can often seem blurry due to overlapping responsibilities. However, understanding the key differences between a bookkeeper vs accountant can help you optimize your business operations.
1. Objective
The objective of bookkeeping is to record all financial transactions accurately, ensuring it’s up-to-date and precise. Accounting, on the other hand, aims to interpret, classify, analyze, and report the financial data for decision making.
2. Skills and education
Bookkeepers usually only need basic accounting knowledge and skills to perform their tasks effectively. An accountant, however, requires extensive knowledge and understanding of accounting frameworks, and typically holds a bachelor’s degree in accounting or finance.
3. Decision-making
While bookkeepers prepare data, accountants are typically the ones providing insights and recommendations that drive decision-making in the business.
Bookkeeping and Accounting Services
Most businesses, particularly small businesses, tend to outsource their bookkeeping and accounting services. Outsourcing provides access to the specialized skills of experienced bookkeepers and accountants, saving your business both time and resources.
Types of Bookkeeping Services
- Day-to-day bookkeeping and accounting
- Bank reconciliations
- Accounts payable and receivable
- Payroll processing
Types of Accounting Services
- Preparing adjusting entries
- Financial analysis and reporting
- Tax preparation and planning
- Forecasting and risk analysis
Why Does the Difference Matter?
Understanding the key differences between bookkeeping and accounting, and properly implementing them, plays a critical role in the financial health and success of your business. Accurate and timely bookkeeping ensures that businesses are able to manage cash effectively, while informed accounting allows for effective decision making and strategic planning.
Now that you are well-versed in the roles of a bookkeeper vs accountant, you’re in a better position to understand which services will best suit your business needs. Whether you decide to invest in bookkeeping or accounting services, or a combination of both, your business stands to benefit.