Bookkeeping vs Accounting: What Every Business Should Know
Bookkeeping and accounting are critical functions that form the backbone of any successful enterprise. Both bookkeepers and accountants are financial professionals with somewhat similar responsibilities. People often confuse both professions or use their terms interchangeably. However, there’s a difference between bookkeeping vs accounting. Today we’ll be looking at bookkeeping vs accounting.
What does a bookkeeper do?
Simply put, bookkeeping is the recording of a company’s day-to-day financial transactions on all applicable accounts (also known as the general ledger).
The primary role of a bookkeeper is to record your debits (expense) and credits (income) on the general ledger. A bookkeeper’s responsibility may also include the preparation of financial statements and reports.
Expectations for bookkeepers
Tasks or responsibilities will vary based on an organizations requirement. Some bookkeepers might also be tasked with any one or more of the following:
- Invoice clients for services or products (accounts payable) and record, including follow up on outstanding balances (accounts receivable).
- Check the company’s bank statements to ensure balances match recorded transactions (aka bank reconciliations).
- Sometimes bookkeepers manage payroll when bookkeeping for small business. But this is only ideal if you have a small staff (e.g. 5 – 20 employees).
- Maintain the general ledger in addition to recording transactions.
The function of a bookkeeper has slightly shifted in recent years but their main responsibility remains the same. That is, to keep good records of your organization’s financial affairs.
What does an accountant do?
In contrast to bookkeeping, accounting professionals analyze, report, and summarize financial data. They help senior management or executives make sound business decisions.
The two primary roles of an accountant are to develop sound methods of financial reporting and ensure the longevity of a company. Accountants look for things like tax loopholes, tax deductions, and other ways to reduce cost. This is one of the major differences between bookkeeping vs accounting.
Another way to think about it is as follows. A bookkeeper is generally responsible for the input and accuracy of ‘raw data’. On its own, raw data can’t be used to make critical business decisions. Accountants design or recommend the systems and rules bookkeepers use to carry out their tasks.
Accountants consider financial implications on the overall business and use data to predict trends. That data is stored on financial statements prepared by a bookkeeper. Sometimes, accountants may also take on increased advisory roles with senior management.
Expectations for accountants
Accounting responsibilities include but may not be limited to the following:
- Create balance sheets that provide a ‘snapshot’ of the company’s financial position at different points in time.
- Prepare income statements that give you an overview of all business sales and expenses. Typically this is done on a quarterly or monthly basis.
- Put together cash flow statements that provide records of all liquid (cash) assets flowing in and out of your company for a period of time.
- Document financial transactions like bookkeepers.
- Analyze your business’s financial transactions and accounting options to recommend appropriate actions.
- Audit financial documents to substantiate any claims or reported info.
- Recommend policies and procedures for accounting processes.
- Maintain regular backups of your company’s financial records.
- Ensure you are following all regulation and internal controls. Including ensuring compliance of all other legal requirements, whether at the local, state or federal level.
- Puts processes in place that ensure the confidentiality of financial information.
Bookkeeping vs accounting: the main difference between
Accountants are strategic planners that provide valuable insights to help business executives/owners grow their companies. But, they can also perform the same tasks as a bookkeeper.
The process of bookkeeping doesn’t require any specialized skill sets. You simply have to be competent enough to record financial transactions. However, accountants require specialized training to analyze and compile financial statements, advise on budgets, taxes, and expenses among others.
Nevertheless, whether performing accounting or bookkeeping duties, a systematic and methodical approach for inputting financial transactions is critical. You must be able to gauge your business’s performance and communicate this information to relevant authorities.
Bookkeeping vs accounting: the evolution
Technological advancements have enabled innovations in the practice of bookkeeping and accounting services. Modern software caters to both bookkeepers and accountants because the two roles overlap.
Online accounting or bookkeeping tools offer highly integrated, ‘cloud-based’ solutions that have improved traditional accounting methods. Furthermore, they allow you to perform key tasks and access financial reporting anytime, anywhere with an Internet connection.
For instance, FreshBooks has amazing invoicing functionalities that really simplify the creation of invoices. Similarly, Tipalti streamlines and automates how your company makes payments to partners. All while ensuring you’re in compliance with every country’s regulation.
You can access reporting and perform most tasks while mobile with all of the aforementioned software.
Cloud-based accounting and bookkeeping solutions
The separation that once existed between bookkeeping vs accounting is slowly diminishing. This is thanks to the advent of integrated cloud-based accounting and bookkeeping software.
Online software has dramatically streamlined the primary role of a bookkeeper. Bank statements, ledgers, and reconciliations have become more automated with modern tools.
For example, QuickBooks lets businesses connect their bank accounts so that transactions are automatically downloaded onto the software. That means no more manual entries, ever! Automation like this also reduces the human error often associated with data entry.
Bookkeepers will have to support their employers in more advisory roles and provide other value-added services moving forward. That means also helping their clients with things like payroll processing, reconciliations, advice on reducing tax burdens, etc.
The accounting professional is well-positioned
Increasingly, more corporations are taking advantage of cloud technology and shifting their operations online.
These technologies have and continue to increase the efficiency of operations. As a business owner, you can now access financial data from anywhere in the world, at any time on a number of different devices.
Accountants are well positioned in the transition from ‘traditional’ practices to online accounting and bookkeeping software. Their specialized training in taxation makes them ideal advisers to businesses that want to thrive.
You can learn a lot about how to position your company in such a way that reduces its overall tax liability from a seasoned accountant. Plus they can also take on the role of bookkeeping.
This is why hiring an accountant may be what you need but keep in mind that they’re more costly. So having both a bookkeeper and accountant on your corner is probably best for the long run.
Thriving in the era of cloud technology
Businesses perform best when they have a complete picture of their finances. When it comes to bookkeeping vs accounting professionals, whom you decide to hire will depend on your objectives.
Bookkeepers and accountants look at business numbers through different lenses. Seasoned bookkeepers are highly accurate when inputting financial data and are able to spot errors fairly quickly. Accountants are great advisors, strategic thinkers (when it comes to money), and possess the same skills of a bookkeeper.
Functions of a bookkeeper and accountant work hand in hand to help your business become more profitable. Both can offer a holistic view of your businesses’ financial situation.
Finally, advancements in cloud-based software technology have made critical business processes more intuitive and effective. However, these changes inevitably present challenges for bookkeepers and accountants with regards to employability.
Nonetheless, there’s no substitute for good advice. Hence, the bookkeeping or accounting professional that provides value-added services to their clients will do very well.
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