Managing finances is an essential part of the smooth operation of your business. Many individuals get confused when they encounter terms like accounting and bookkeeping. It is essential to keep track of several financial aspects of your business, and therefore, you must understand the bookkeeping vs accounting difference. Bookkeeping manages financial books by recording transactions, financial data, and managing accounts. Accounting uses that data to evaluate a business’s financial health and make informed decisions. Automation in bookkeeping can decrease errors by up to 90%. This statistic suggests how businesses today are increasingly inclined towards adopting automation techniques in bookkeeping to streamline their business operations. Through this article, you will understand the clear differences between bookkeeping and accounting, and can also explore the bookkeeper vs accountant difference to understand how both are unique.
Overview of Bookkeeping
Bookkeeping refers to the financial tracking of daily financial transactions of a business. A bookkeeper may use online bookkeeping software for these transactions.
The key responsibility of a bookkeeper is to input all the required financial information accurately into the bookkeeping software or ledgers. This makes it simpler to track cash flow and detect errors early. Usually, bookkeepers ascertain that bills are paid, employees receive payment timely, and also balance accounts.
Overview of Accounting
The accounting process provides a detailed summary of the financial realities of a company. Usually, accountants rely on financial statements provided by bookkeepers to manage their work. However, they also comprehensively evaluate how money works across the business.
These professionals prepare financial statements that help business owners, managers, and governments understand how efficiently a business works. Their key tasks include budgeting, tax calculations, and providing advice on the company’s finances. Since accountants are more specialized, not all companies don’t have an in-house accountant.
Responsibilities of Bookkeepers and Accountants
A business must know what a bookkeeper do vs accountant to determine which professional to hire for their business needs. You can understand bookkeeper vs accountant differences better if you know the key responsibilities of each of them.
Common Responsibilities of a Bookkeeper:
- Bookkeepers review source documents and enter journal entries into accounting software.
- They prepare income statements and balance sheets.
- They manage all invoices to track late payments and make sure the business is being paid timely.
- They handle employee pay to help process payroll.
- By keeping an eye on daily transactions, they make sure a business has sufficient funds to undergo day-to-day operations.
Common Responsibilities of an Accountant:
Let’s go through common responsibilities of accountants to better understand the bookkeeper vs accountant difference.
- Accountants help ensure the precision of a bookkeeper’s work and detect any discrepancies if they arise.
- They review and adjust bookkeeping records to resolve any clerical errors and assess a business’s financial health.
- After making adjustments to the trial balance, they generate financial statements (including the balance sheet, income statement, and cash flow statement).
- They perform audits to assess and verify all of a business’s financial statements and records.
- They prepare the financial reports that help generate tax returns.
Bookkeeping vs Accounting: Key Differences
The table below highlights the major bookkeeping vs accounting differences:
Point of Comparison | Bookkeeping | Accounting |
| Key objectives | To record financial information and maintain ledgers | To review financial information and create financial forecasts |
| Duty of the professional | One of the major bookkeeping vs accounting differences is the responsibilities of the professional. Bookkeeping manages daily company operations. Bookkeepers are involved in every process where payments take place. They possess a strong understanding of all financial details in the company, so they can spot inconsistencies, if any.
| An accountant looks at all of the financial details of a company so they can make bigger decisions regarding how the business operates. They also manage tax filing and returns.
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| Legal Obligations | It is required to keep accurate records | It is required for tax filing, reporting, and making strategic decisions |
| Timeframe | Ongoing, daily, or weekly | Periodic, usually monthly, quarterly, or yearly |
What is a CPA (Certified Public Accountant)?
CPAs are competent to perform audits legally and represent clients before the IRS. Also, they can provide specialized tax advice and can also prepare complex tax returns. An understanding of bookkeeper vs accountant vs CPA will guide you on which professional to hire for your business’s financial needs. Usually, businesses rely on CPAs for auditing financial statements, handling tax planning and compliance, and ensuring financial practices adhere to regulations. Consulting a CPA can make your company’s financial practices more credible.
Which One to Choose: Bookkeeper or Accountant?
The exact answer depends on your business’s size and financial needs. If you are a startup business owner or running a small business, then you can hire a bookkeeper to organize your records and manage cash flow. If your business is growing or handling complex transactions, you can hire an accountant to get strategic guidance.
You can hire a bookkeeper if you:
- Find it challenging to keep track of daily transactions
- Take much time to handle financial record-keeping
- Require organized, error-free books for tax preparation
You can hire an accountant if you:
- Have uncertainty on tax laws and deductions
- Notice business growth and require financial forecasting
- Require professional guidance on improving profits and reducing costs
Conclusion
Bookkeeping maintains the accuracy of your financial records, whereas accounting helps you assess those records and subsequently make strategic decisions. Getting familiar with what does a bookkeeper do vs accountant will help you understand how each of these professionals differs in terms of their responsibilities. The familiarity with the basics of accounting and bookkeeping will help your business achieve long-term stability and growth.
Also, Read – Invoice vs. Receipt: Key Differences for Business Owners
Frequently Asked Questions (FAQs)
1. Which one is better among the two: bookkeeping or accounting?
Both these processes are essential for a company. The choice depends on your small business needs. Bookkeeping is excellent for keeping your financial records organized and accurate. Accounting helps analyze financial data, simplify tax planning, and provides insights to make strategic business decisions.
2. Is it difficult to learn bookkeeping?
If you have an eye for detail and are good at math, then bookkeeping is not difficult to learn. You may face challenges with financial reporting, tax rules, and compliance requirements. However, you can learn these aspects over time.
3. When should a small business hire a professional accountant?
If your small business is growing, encountering tax complexities, or requiring financial forecasting, then it is best to hire a professional accountant.
4. Why should a business adopt a bookkeeping and accounting process?
Every business must have an accounting and bookkeeping process to prepare the financial records at the end of a quarter/year. These processes help the business assess its worth and make future decisions.
5. How do bookkeeping and auditing differ?
The bookkeeping process maintains the records of the business and ensures that all requirements are fulfilled. Conversely, auditing involves performing analytical and backtesting on the records to ensure authenticity.
