Bookkeeping and accounting are two terms that are often used interchangeably. However, there are some differences between the two.
Bookkeeping is about recording your transactions to allow you to keep track of them. It’s about making sure that you have an accurate record of how much money came in and went out.
Accounting is the process of recording data, summarizing it, analyzing it, and communicating it. Accounting includes bookkeeping but is much more than just keeping track of transactions.
This article will explain the difference between bookkeeping and accounting in detail.
The Function of Bookkeeping
The function of bookkeeping is to keep track of a company’s financial transactions. Bookkeepers record transactions by entering data into a computerized system. They take receipts, invoices, and other documents, enter them into the system and charge each item to the appropriate client.
They use software that allows for just about any type of transaction to be recorded and categorized, making it easy to find any given information later on. Bookkeepers use software programs like QuickBooks, Sage, Xero, or other accounting software programs to keep track of the day-to-day transactions in your business.
These programs allow them to record every transaction accurately to create reports for their clients quickly.
Bookkeeping is essential because it keeps track of all the money coming into and going out of an organization’s bank account. It allows businesses to see exactly where their money is going to determine if there are ways they can cut costs here and there without affecting their bottom line too much.
For example, if your company has been spending too much on advertising, then maybe it’s time you started looking for cheaper alternatives like free online ads instead of expensive print ads that do almost nothing for your sales numbers.
After entering all of the transactions for a given period, bookkeepers post them to the general ledger. The public ledger is an electronic or paper system used by accountants and businesses to track all of their assets, liabilities, and equity at any given time. This provides businesses with a complete picture of their finances at any given time to make decisions about future expenditures.
The Function of Accounting
Accounting is a core management accounting function. The main goal of accounting is to provide financial information to decision-makers.
Managers use accounting information to decide how much money to invest in the business, when and where to borrow, and how much profit is generated from different products or services.
Accounting is also used to allocate assets and liabilities among owners and creditors. Accounting standards are designed to provide consistency in the way assets and liabilities are reported so that investors can compare companies’ performance over time.
Think of it this way; accounting is an essential part of controlling a business because it provides information about how well a company is doing financially and its financial position at any point in time. Because accounting reports are prepared on regular bases (usually monthly), they provide timely information that managers can use to make decisions quickly when they need it most.
Accounting involves more than just recording transactions — it also requires analysis, interpretation, and reporting those facts in ways that are useful for decision-making purposes.
Bookkeeping records transactions with little research beyond whether or not they happened correctly according to predetermined criteria set forth by law or company policy (such as double-entry accounting systems).
Where Bookkeeping Ends, Accounting Begins
The lines between bookkeeping and accounting are often blurred. Bookkeeping is the recordkeeping function of a business, and accounting is the reporting part.
Bookkeeping typically involves recording transactions, summarizing them, and arranging them orderly. Bookkeepers may use software or even handwritten ledgers to keep track of the financial transactions of a business.
Accounting is a broader term that encompasses more than just bookkeeping. Accountants use information from all parts of the business to create financial statements that help companies make better decisions about spending and investing money.
Bookkeeping is necessary for every business, but it is only one part of the larger accounting picture. Bookkeeping is simply the process of recording transactions in a company’s financial records. Bookkeeping does not include analysis, which is where accounting comes in.
The Roles: Bookkeeper vs. Accountant
You may have heard these two terms used interchangeably, but there is a difference between bookkeeping and accounting. The role of both professionals is to keep track of the financial records of a business, but they differ in their level of expertise and the work they perform.
A bookkeeper tracks transactions and records them in a ledger or accounting software program.
They also reconcile bank statements and record deposits and withdrawals from cash registers. Bookkeepers are typically responsible for maintaining financial records from day-to-day operations, such as tracking inventory, cash flow, and payroll expenses.
Bookkeepers are usually not licensed professionals. They typically hold an associate degree or certificate in accounting from a community college or technical school. They may be certified through a professional organization like the American Institute of Professional Bookkeepers (AIPB).
A bookkeeper is responsible for the day-to-day accounting duties of a company. You will be working directly with the bookkeeping software and financial records in this role. The accountant role requires you to have more advanced knowledge of financial statements, taxes, and business practices.
An accountant provides more in-depth financial analysis than a bookkeeper does. They evaluate an organization’s overall financial performance by examining its sales, profits or losses, assets, liabilities, and other aspects related to management decisions such as capital improvements or expansion plans.
An accountant often prepares tax returns for individuals or businesses, advises clients on taxes based on their income levels, prepares budgets for future planning purposes, and audits tax returns prepared by others.
Usually, an accountant is a licensed professional who has completed a four-year degree program in accounting and passed a state exam. Accountants are experts in tax preparation, auditing, and financial planning for businesses.
They may also advise clients on how to finance their businesses or grow their profits by investing in assets such as real estate or stocks.
An accountant performs many of the same tasks that a bookkeeper does. Still, they also provide advice on tax matters, which makes them more valuable than a simple bookkeeper who only records transactions and prepares financial statements.
Bookkeepers are not required to have any specific education or certification to work in this field.
However, some employers may prefer applicants with a degree from an accredited college or university or a diploma from an organization such as the American Association of Professional Bookkeepers (AAPB).
The AAPB offers two levels of certification: Certified QuickBooks ProAdvisor (CQPA) and Certified QuickBooks Enterprise ProAdvisor (CQE). The CQPA requires at least two years of experience as a bookkeeper, while the CQE requires at least five years’ experience and passing an exam designed by Intuit.
The primary difference between bookkeeping and accounting is that accountants must meet specific professional standards to become licensed.
To practice as an accountant in most states, you must obtain a bachelor’s degree from an accredited university with a major in accounting or a related field such as business administration or finance.
It’s also necessary to pass two exams: one covering basic concepts and one covering more advanced topics. These exams are administered by the American Institute of Certified Public Accountants (AICPA). Once you pass these exams, you can apply for licensure in your state board of accountancy.
Bookkeeper or Accountant: Which Do You Need?
There are two types of professionals who can help you with your business finances: accountants and bookkeepers. Which one do you need?
The difference between bookkeeping and accounting is that bookkeepers keep track of the money coming in and going out, while accountants do more than this. Accountants are responsible for reporting the financial information to the IRS, investors, and other stakeholders.
Bookkeepers usually work on a smaller scale than accountants do. They may be self-employed or work for a small business or an individual. Generally, they keep track of receipts coming in and payments going out of a company or personal bank account. Their track information includes purchases made on credit cards, cash withdrawals, checks written and received, etc.
Accountants work in many different businesses, including large companies and government agencies. They may also work for individuals who have small businesses or need help keeping track of their finances.
Accountants help clients with tax preparation and tax planning and prepare budgets and forecasts for future years’ income. They may also perform audits on behalf of government agencies or other third parties like banks or insurance companies to ensure proper financial reporting has been done by those entities receiving funds from them.
Many small businesses and startups think that they should hire a bookkeeper if they can’t afford an accountant.
Most businesses need both.
You can’t have one without the other. A bookkeeper does not provide tax advice or strategic financial management advice that impacts your business’s long-term growth and profitability. An accountant does not collect payments from customers or write checks for vendors — those are all tasks a bookkeeper performs.
The Changing Landscapes of Bookkeeping and Accounting
The landscape of bookkeeping and accounting has changed drastically over the last few years. As technology becomes more advanced, it is essential to understand how these changes affect your business.
The changing landscape of bookkeeping and accounting makes it difficult to distinguish between them.
For example, accountants were responsible for preparing past financial statements and tax returns. Many accountants also provide bookkeeping services to their clients, complicating the difference between accounting and bookkeeping.
Merging of Bookkeeping and Accounting Functions
The distinction between bookkeeping and accounting used to be clear: Accountants performed audits while bookkeepers handled day-to-day recordkeeping tasks like processing invoices and payments and managing budgets.
However, as technology has advanced, many businesses outsource their accounting needs to third parties — including some bookkeepers who offer these services as part of their packages.
As a result, it’s becoming harder for consumers to tell whether they’re getting an accountant or a bookkeeper when they hire someone to handle their finances on their behalf.
Bookkeeping to Become Obsolete Slowly
The world is changing, and the way we do business with it. As a result, bookkeeping is quickly becoming obsolete.
Technology makes it easier than ever before to keep track of your finances. However, as technology advances, so does our need for more efficient systems.
Although there are still some industries that require manual bookkeeping, most businesses have found ways to automate their processes using software programs and cloud storage.
These programs allow you to track expenses, revenues, and other crucial financial information without hiring a bookkeeper.
We Are the Solution You Need
Bookkeeping and accounting are different but related functions. The principal difference between bookkeeping and accounting is that bookkeeper’s record transactions in a company’s books, while accountants are responsible for preparing financial statements.
Bookkeepers keep track of money coming into and going out of a business. They record information about bills paid and received, sales revenue and expenses, payroll transactions, and other details of the business’ finances. These records help accountants prepare financial statements for the company to manage its business operations.
Accounting involves more than just balancing ledgers and preparing financial statements. Accountants also prepare tax returns, assist with audits, set up accounting software systems, review budget reports, and perform other tasks necessary to control the financial side of a business.
Lucky for you, Finance Hire has a team ready to provide both services for you. We are even happy to schedule a call to ensure you have the right back-office structure and the right bookkeepers or accountants in the right seats.