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Bookkeeping vs. Accounting

Bookkeeping vs. Accounting: Everything You Need to Know

Contents

A small business owner must have a firm grasp of his or her finances to be successful. As a result, a company’s financial data must be up-to-date and accurate to make sound business decisions and maintain a robust cash flow. As a business grows it can become more difficult to track finances by yourself and perhaps you are ready to either hire an accountant or bookkeeper.
In comparing accounting versus bookkeeping, the business owner must decide which tasks can be handled in house and which ones should be outsourced. Bookkeeping services include maintaining complete records of money that is flowing in and out of the business. Bookkeepers must also log daily transactions in a consistent, easy-to-understand way. Typical bookkeeping tasks include maintaining and balancing ledgers and accounts, posting debits and credits, creating invoices, and taking care of payroll.
Accountants use these records to complete their analysis of the company’s finances. to do their jobs. Accounting services include interpreting, analyzing, and summarizing the financial data.

Bookkeeping vs. Accounting

Bookkeeping services and accounting services are two vital functions for every company. In the simplest of terms, bookkeeping’s main task is to record financial transactions. In contrast, accounting focuses on a higher-level analysis of the numbers, i.e., interpreting, classifying, analyzing, reporting and summarizing financial data.
Overall, when comparing bookkeeping versus accounting, bookkeeping can be described as more of a procedural and administrative role that manages the day-to-day tasks of recording financial transactions and documents—purchases, receipts, sales and payments. Meanwhile, accounting services are more subjective, helping business owners by sharing financial insights based on information obtained from the bookkeeping data.
Bookkeeping and accounting may appear to be similar because both accounting and bookkeeping deal with financial data, require basic accounting knowledge and classify and generate reports using the financial transactions. However, bookkeepers record daily transactions in a consistent, easy-to-read way, and their records enable the accountants to do their jobs.

What is a Bookkeeper’s Role?

One of a bookkeeper’s main roles is to record all financial transactions into the general ledger using double-entry bookkeeping. Ledgers can range from a notebook to specialized bookkeeping software, such as QuickBooks, for tracking entries, debits and credits. A bookkeeper has to be knowledgeable about debits and credits and have a basic understanding of financial statements.
Bookkeeping services also include the recording of a company’s financial transactions to describe where money is being spent, where revenue is being generated and which tax deductions can be claimed. Other bookkeeping tasks include the storage and retrieval of the financial records of the company’s financial transactions.
Typical bookkeeping tasks include posting debits and credits, producing invoices, managing payroll, and maintaining and balancing ledgers, accounts and subsidiaries.
Bookkeepers are responsible for preparing four important financial statements: an income statement, or a profit and loss; a balance sheet that illustrates a company’s financial position at a certain time period; a cash flow statement that is a record of the cash and cash-like equivalents going in and out of the company; and a statement of changes in equity. Other responsibilities for bookkeepers can include collecting and remitting sales tax, monitoring debt levels, recording income cash and depositing it at the bank and handling bank reconciliations at month-end.

What is the Role of an Accountant?

An accountant’s main role is to review, interpret, analyze and report a company’s financial information. Accounting services also include analyzing financial data to offer financial data insight and financial advice, and also suggesting ways to make the organization run more smoothly. As a result, their business insights can help an organization reduce its costs, increase revenues and boost profits.
Accountants conduct a risk analysis and examine the accuracy of financial documents to determine if they are compliant with laws and regulations. In addition, accountants are in charge of tax returns to ensure the tax bill is paid in a timely fashion.
Taxes are not their only area of expertise.
After tax season is over, an accountant can provide advice such as if it’s worthwhile to establish a secure line of credit against receivables when introducing new products. They also locate and address any discrepancies in the company’s accounting.
At year-end, there are many tasks for an accountant. These include preparing financial statements and the proper accounts for the firm. Over the reporting period, the accountant’s responsibilities are called the accounting process, a series of activities beginning with a transaction and concluding with the closing of the books. The year-end reports completed by the accountant must also adhere to standards established by the Financial Accounting Standards Board (FASB); these rules are called Generally Accepted Accounting Principles (GAAP).
To become a certified public accountant (CPA) it is necessary to obtain a bachelor’s degree in accounting. Though there are types of accounting degrees including an associate’s degree.

Top Differences Between Bookkeeping and Accounting

While bookkeepers log daily transactions, accountants take the data compiled by a bookkeeper to create financial models. Therefore, bookkeepers provide a literal look at where the company stands financially at the moment, while accountants help executives understand the complete picture of the company’s finances and how the business is performing.
Accountants take the information compiled by a bookkeeper and construct financial models. Bookkeeping is procedural and straightforward, while accounting is more subjective and requires skilled interpretation. Examples of accountant’s advice include helping executives understand when it is the best time to incorporate or how to file taxes to obtain the best return.

Differences between Bookkeeping and Accounting

Bookkeeping
Accounting
Definition

Bookkeeping is the daily recording of a business’s financial transactions. Accurate bookkeeping enables companies to log all of its information in its books. In turn, that helps executives make operating, investing, and financing decisions.

Accounting is the term for the process of recording and summarizing business and financial transactions. It also includes the presentation of the results in various reports and analyses.
Decision Making
Executives do not make business judgments solely on the information provided by bookkeeping.
Depending on the information and data analysis created by their accountants, executives can make critical business judgments.
Objective
The objective of bookkeeping is to ensure that all records of financial transactions are accurate and proper.
The objective of accounting is to analyze the company’s finances and provide information to top executives.
Preparation of Financial Statements
Bookkeeping services do not include preparing financial statements.
During the accounting process, accountants prepare financial statements.
Skills Required
Many entry-level bookkeeping jobs request that applicants have studied basic accounting to show knowledge of the job’s fundamentals.
Accountants usually obtain a bachelor’s degree. A bachelor’s degree in accounting or a related field is necessary to become a certified public accountant (CPA). Accountants need special training because of the complexity of the job.
Analysis
Bookkeeping services do not involve analysis.
Accounting relies on bookkeeping records to analyze and interpret financial data and compile the information into reports.
Types
There are two major types of bookkeeping—single-entry and double-entry.
The accounting department prepares a firm’s budgets and works on loan proposals.
Bookkeepers and Accountants
Bookkeepers must be extremely accurate when completing their tasks and must be knowledgeable about finance. The bookkeeper’s work is typically supervised by an accountant.
With the proper degree and experience, accountants can attain a CPA designation.

How to Know When to Hire a Financial Professional?

Accounting and bookkeeping are often the tasks of running a small business that are dreaded by small business owners. Despite this, many entrepreneurs spend hours on bookkeeping tasks and struggle to complete these chores. Another tough role is to maintain records of all of the company’s income sources and expenses. The first reason then to hire a bookkeeper is to save time, or for effective time management. It simply does not make sense for a business owner to devote several hours to complete a project such as a bank reconciliation that a bookkeeper can complete in half an hour.
Saving time is one of the top reasons to hire a bookkeeper, but growth is also another key factor. As a business expands, delegating the task of bookkeeping enables the business owner to focus on more pressing matters of running the company. Depending on the business needs, an accounting professional can be helpful if a company’s finances become complex as it grows. A dedicated bookkeeper will make sure the books are accurate and that lets the owner concentrate on what he or she is best at. While an accountant can analyze a complete picture of a company’s financial operations and offer strategic guidance.

The Benefits of Employing Bookkeepers and Accountants

Another benefit of hiring a bookkeeper is the potential to save money on accounting services. As a hypothetical: suppose a company failed to prepare monthly financial statements and reports and then gave the business records to an accountant to file taxes at year-end. In this example, the accountant would have to charge extra fees to prepare those monthly financial statements that were not completed—effectively doing work that should have been done by a bookkeeper. Accountants’ fees are generally higher than bookkeepers, so it is cost effective to hire a bookkeeper.
Bookkeeping services also provide accountability. A skilled bookkeeper complies with the latest legal regulations and will ensure that all accounts and books are up to date with any recent legal changes. The bookkeeper holds himself or herself accountable for their work, and they will correct mistakes.
Once a bookkeeper establishes detailed recording and provides a better overview of the company’s accounts, planning and making predictions for the future is much easier. With confidence in the company’s data, executives can solve issues quickly and take advantage of opportunities.
Once a bookkeeper establishes detailed recording and provides a better overview of the company’s accounts, planning and making predictions for the future is much easier. With confidence in the company’s data, executives can solve issues quickly and take advantage of opportunities.

Do You Need a Bookkeeper or Accountant for Your Business?

Entrepreneurs and small business owners generally prefer to take care of most their business needs on their own. One way many businesses try to save money is by not paying for bookkeeping or accounting services and perhaps rely on QuickBooks. Once a company’s annual sales climb over the $1 million mark or has 30 employees, experts recommend hiring a full-time accountant or bookkeeper.
A cost comparison between contracting a bookkeeper or an accountant reveals that hiring a bookkeeper on a part-time basis in the U.S. ranges from $15 to $60 an hour, depending on such factors as location and workload, according to Entrepreneur.com. In contrast, at accounting firms junior employees earn about $60 to $120 an hour; more experienced CPAs who will take care of complex work commands about $150 to $250 an hour, according to Kompareit.com.
In terms of deciding which services are best for your company, bookkeeping versus accounting services, an accountant analyzes the overall status of your company’s financial situation and then makes recommendations. They also can generate financial documents, such as a profit-and-loss statement.
In contrast, a bookkeeper is responsible for day-to-day tasks such ensuring that new employees file the correct paperwork for inclusion on payroll, sending invoices to clients and following up on them, and paying the bills. The bookkeeper also tracks company expenses and must check that each and every cost has been entered correctly to prepare the company for tax time.

Modern-day Bookkeeping and Accounting: Online Services

There are new options available for small business owners who do not want to manage their financial accounts, but lack the budget to contract an accountant. Bookkeeping services are adapting to the online world. New online bookkeeping services combine bookkeeping software and professional accounting. The business owner enjoys the benefits of an in-house bookkeeper while gaining the time to concentrate on other parts of the company.
Companies now have the choice to either outsource bookkeeping and accounting services or hire an in-house bookkeeper or accountant. Many small businesses prefer outsourcing to an online service instead of hiring a bookkeeping professional or an accounting firm. They prefer to outsource because they can pay the fees to obtain the most-necessary services instead of paying a full-time salary and benefits if they hire a bookkeeper.
For a cost comparison, buying online bookkeeping software and running it by yourself is less than hiring a part-time bookkeeper. Depending on the vendor, the range for accounting software is $15 to $75 a month, according to web site Nav.
Hiring a part-time or full-time professional bookkeeper will cost more, but that depends what financial or payroll services required by the company. Online bookkeeping services reviewed by NAV charge small businesses about $300-500 per month, and additional services can increase the cost.

Conclusion

When comparing bookkeeping versus accounting, some of the main differences are that bookkeeping is a procedural and administrative function that is responsible for most of the day-day needs of a company. Bookkeeping services tasks such as recording financial transactions including purchases, receipts, sales, and payments. Accounting services are more subjective. Accountants provide entrepreneurs and business owners with financial analysis gleaned from information taken from the company’s bookkeeping data.
In simpler terms, bookkeepers log daily transactions, while accountants work with the data compiled by a bookkeeper to create financial models. Therefore, bookkeepers provide a literal look at where the company stands financially at the moment, while accountants help executives understand the complete picture of the company’s finances and how the business is performing.
Accountants take the information compiled by a bookkeeper and construct financial models. Bookkeeping is procedural and straightforward, while accounting is more subjective and requires skilled interpretation. Examples of accountant’s advice include helping executives understand when it is the best time to incorporate or how to file taxes to obtain the best return.

About the Author

Tyler Barr, Director
Tyler Barr, Director

Tyler Barr is the director for Punch Financial and an outsourced controller who specializes in managing financial and accounting functions for various small businesses and startups.

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