Before understanding the difference between bookkeeping vs accounting, let’s see the role of bookkeeper and accountant.
A bookkeeper records the transactions of a company, including daily sales, bills paid, payroll, and any other expenditure. A bookkeeper’s role is not limited to the accounting processes. Accounting Processes may an accounting professional reconcile and indemnify any books or records provided by a bookkeeper.
An accountant examines the financial records and statements of a bookkeeper to provide analytical interpretations. The accountant holds a 4-year degree in accounting. This enables them to analyze and understand the bookkeeping data. It also helps to reflect a company’s financial health. The bookkeeper does not need to be focused on the financial analysis, but he or she must keep a detailed record.
Tracking account payables (money you owe to others) and accounts receivables (money owed by you). Bookkeepers keep track of all invoices, due dates, and follow-up with late payers. They will also ensure you pay your accounts on time and avoid double payments. After the payment has been received, the company will make the expense a business expense and record it in the ledger.
Maintaining a general ledger which is the accounting master document that stores all financial transactions. The general ledger generally uses the double-entry accounting method. This implies that for each credit on one record, there is a charge on another. Your bookkeeper should:
You can add relevant credit and debits in your journal, before transferring them to the general ledger. These debits & credits must balance. In this way, you can track all income and expenditures.
Similarities between an Accountant and a Bookkeeper
To a layperson accounting and bookkeeping can appear to be very similar jobs without much difference. For differences between accounting vs bookkeeping, you will need to have a basic understanding of accounting. Smaller and medium businesses might hire only bookkeepers who can manage accounting processes.
Such bookkeepers are responsible for creating financial reports and transaction classification. Which is something that accountants should be able to do? In certain cases where accounting software has already automated transactions and memorized them, the company may only need the services of an accountant. For the accounting processes to begin, an accountant such as this one will need to classify and record transactions.
What Does a Bookkeeper Do?
Although the primary job of a bookkeeper involves recording financial transactions and other administrative tasks, it is also important to maintain a business’s smooth running. These are:
Recording customer transactions: Must record customer payments and not send past-due notices or invoices to customers who haven’t paid.
Invoicing It’s impossible to get paid if you don’t send invoices. Bookkeepers record sales and issue invoices for goods or services provided by your business.
Bill payment: Organizations must maintain good working relationships with their suppliers.
Organization and categorizing transactions. This includes reviewing and correcting incoming bills and preparing them for payment.
Reconciling Bank Statements: Reconciling banks statements on a month-to-month basis reduces potential errors and provides an accurate balance every month.
Handling monthly-end adjustments because bookkeeping software makes it easier to keep track of the journal entries, there are likely to be month-end entries that account for bank fees, interest expenses, and other things that were overlooked.
Maintaining petty funds: With many companies using a company credit card, a bookkeeper needs to make sure that the funds are dispersed and managed.
Preparing financial accounts: Although an accountant will analyze these statements. They should still be prepared on either a monthly, quarterly, or annual basis depending on your company’s needs.
Bookkeepers could also be responsible in other areas, such as budget preparation or helping with budget preparation.
What is Accounting?
Bookkeeping and accounting can sometimes be confused because the job of an accountant overlaps with that of the bookkeeper. The accountant analyses the information and uses accounting principles, while the bookkeeper enters transactions.
Accountants usually handle
Financial statement preparation- Bookkeepers can prepare standard reports, which can include financial statements. But, accountants tend to run these reports. You should first consult your accountant if you need an income statement. A cash flow statement. A balance sheet. Or any other report. The accountant will analyze the information and help you improve your business performance.
Accountants need to understand the meanings of the transactions that bookkeepers enter. It includes everything you need to calculate accounting ratios, adjust the general ledger, and more. Historical data is also used by accountants to determine trends such as product profitability and decreasing revenues.
Accountants see the bigger picture. Bookkeepers may be able to spot trends. But, accountants can provide financial advice and specific information on how you can reduce expenses, increase revenues, or make your products or services more profitable. Bookkeepers are additionally able to give exhortations about business construction and business extension.
This is one of the top reasons small businesses hire an accountant. While accountants can help with tax returns preparation, their knowledge of the IRS and tax deductions, tax planning, and ways to reduce tax liability is what makes them unique. All we have to pay is our taxes. But, accountants can help reduce your tax liability.
Differences between Bookkeeping vs Accounting
Key differences between bookkeeping vs accounting include:
- The data bookkeeping information is not enough to allow management to make business-related decisions.
- Bookkeeping must have no special skills. Accounting, but, requires specialized skills.
- The analysis is not required for bookkeeping, but accounting uses data from bookkeeping to interpret and analyze data. This data is then used to total reports.
- Bookkeepers must be accurate and knowledgeable about financial topics. Usually, but, they are overseen by accountants.
Accountants who have enough experience and have completed the required education (generally a bachelor’s degree) can apply for professional certification to become certified public accounting or CPA. You must remember that not all accountants will be CPAs.
Bookkeeping has the main goal of recording all financial transactions and. Accounting is a tool that helps companies assess their financial situation and share it with those who are responsible.
There are two types of bookkeeping: single-entry or dual-entry. The accounting department creates a budget for an organization and plans loans proposals.
Which One Do You Need?
In a perfect scenario, the business owners wouldn’t have to pick and would have both. Most small businesses can work with one bookkeeper during the initial stages. It may not be enough to manage daily activities. An accountant can be a bookkeeper in some cases. But, an accountant is always helpful to review the entries, examine your cash flow, and give feedback about your business performance.
Both of these functions are vital to the success of your business. Although a small business may have enough bookkeeping systems, this does not mean that they are indispensable. QuickBooks, accounting software that simplifies the bookkeeping process, but it requires you to have a different set of skills and knowledge about accounting for your business to be successful.
Technology continues to advance, and the boundaries between accounting and bookkeeping are blurring. Accounting software and bookkeeping software have allowed some elements of accounting to be integrated into bookkeeping. But, bookkeeping software can also generate financial statements that were not before part of the accounting process.
A bookkeeper will still be needed by most businesses to keep the books in order. But, it wills must be more than data entry and bank reconciliation. These functions might become obsolete or decrease in frequency as many bookkeeping tasks will be performed by bookkeeping programs.
Today’s small businesses do not need to keep a full-time bookkeeper or accountant. But, larger organizations can enjoy having accounting services available at their disposal. If they have a good record of financial transactions, owners of small businesses can hire an account as needed. Inadequate record-keeping will make it difficult for accountants and bookkeepers to provide accurate and timely data.