Updated: Jun 30, 2022
Under an untrained eye, bookkeeping and accounting may appear to be the same profession. It’s a common misconception regarding the two since both bookkeeping and accounting deal with financial data, and work with numbers. Though they seem similar, there is a distinction between each process and the roles of a bookkeeper and accountant.
Simply put, bookkeeping focuses on recording transactions and organizing financial data while accounting gives you an insight into your business’s financial health based on bookkeeping information.
As a business owner, it’s important to understand the major differences between bookkeeping and accounting.
In this guide, we’ll guide:
The difference between bookkeeping and accounting
The duties of a bookkeeper vs accountant
When should we hire a bookkeeper?
Bookkeeping vs Accounting
What is Bookkeeping?
Bookkeeping is the process of recording daily transactions in the original books of entry of a business in a systematic way. All the day-to-day financial transactions of a business such as payment of taxes, sales revenue, loans, interest income, payroll and other operational expenses, investments, etc are recorded into the general ledger.
Accurately maintaining a general ledger is one of the key components of bookkeeping to give a piece of reliable information on the performance of a company and the company also uses this information to make major investment decisions.
Bookkeeping consists of:
Recording daily financial transactions
Posting debit and credit
Preparing financial statements (balance sheet, cash flow statement, and income statement)
The books of account need to be up-to-date as it is the basis for accounting which forms a part of the broader scope in finance.
All bookkeeping tasks are usually performed by a bookkeeper.
What is Accounting?
Accounting is the process of interpreting, analyzing, summarizing, and reporting the financial transactions of a business that allow you to interpret that data and have crucial decision-making. Accounting tasks are usually performed by a certified professional accountant (CPA).
The financial statements prepared in accounting are a precise summary of financial transactions over an accounting period. These statements will tell you about your company’s financial position, operations, and cash flow. Additionally, all the stakeholders use your financial statements to assess the performance of your company.
Analyzing is a key part of the accounting process, in which your accountant will delve deeper into the figures to give you a better understanding of trends and variances. The accountant will take the data produced by the bookkeeper through accounting software.
The roles: bookkeeper vs accountant
The work of bookkeepers and accountants is sometimes overlapped but requires a different skill set.
What does a bookkeeper do?
A bookkeeper’s role is to record your business’s transactions on a daily basis and keep your books financially organized. The tasks of a bookkeeper may vary from one organization to another. Generally, the duties of a bookkeeper are as follows:
Making journal entries for all receipts, payments, and other financial transactions
Posting journal entries to ledger accounts
Performing bank reconciliations
Preparing cash flow statements and financial reports
Performing payroll administration duties
Filing tax returns
Typically, bookkeepers aren’t required to have any formal education or certification. To be successful in bookkeeping tasks, they need to be sticklers for accuracy, and knowledgeable about key financial topics.
What does an accountant do?
An accountant generally record interprets, analyzes, summarizes, and reports on financial data. They use the financial records compiled by bookkeepers to prepare financial statements and reports and perform financial analyses. Based on the financial analysis, accounts are able to make strategic recommendations regarding decision-making on specific financial situations. The general roles of an accountant may include some or all of the following:
Preparing financial statements (such as balance sheet, income statement, and statement of profit and loss)
Reporting on financial performance
Analyzing financial data to provide the business with information that will assist in future planning and decision-making
Ensuring compliance with relevant financial law and regulations
Giving financial advice
Accountants can be bookkeepers but not all bookkeepers are qualified to be accountants. To become an eligible accountant, they need to pass a Certified Public Accountant (CPA) and have sufficient experience.
Bookkeeping vs Accounting - 5 Key Differences
Bookkeeping and accounting are two functions that are vital for every business. To resolve the confusion, we’ve listed down bookkeeping vs accounting differences below:
Bookkeeping is more transactional and administrative. It focuses on recording daily financial transactions
Accounting is more subjective, referring to the process of summarizing, interpreting, and analyzing the financial data of a business.
Bookkeeping is the basis of accounting.
Accounting uses the information produced by bookkeeping to prepare financial reports and statements.
The accuracy of bookkeeping is crucial for accurate input of accounting.
The result of accounting is preparing financial statements for making investment decisions.
Bookkeeping tasks are usually performed by a bookkeeper.
The person responsible for accounting is usually a certified accountant.
The bookkeeping process provides year-end financials and tax documents to the accountant.
Accounting uses documents to file tax returns, conduct tax planning, and provide tax advisory.
Bookkeeping and accounting are extremely important for the long-term success of your business. Both bookkeeper and accountant support your business in different stages of the financial cycle. However, some business owners are trying to manage their finances on their own. Ideally, hiring a professional may allow them to focus on growing business and customers.
Why you should hire a bookkeeper?
Online bookkeepers offer vital business services. They free up your time from back-office and administrative tasks, then you have more time to focus on customers/clients and growing your business.
Irvine Bookkeeping provides end-to-end outsourced bookkeeping services that take charge of your books, and get them done. You just switch your energy and your valuable time into growing your business. Get started with a free consultation.