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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, and a company’s financial data must be up-to-date and accurate to make sound business decisions.

The accounting and bookkeeping roles have different but complementary functions and a common goal, and you 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. Accountants then use these records to complete their analysis of the company’s finances. 

Learn more about the key differences between these functions below.

Bookkeeping vs. Accounting

Bookkeeping services and accounting services are two vital functions for the financial health of every company. At a high level, 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.

What is a Bookkeeper’s Role?

One of the 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 the 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: 

  1. An income statement, or a profit and loss
  2. A balance sheet that illustrates a company’s financial position at a certain time period
  3. A cash flow statement
  4. 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, tax preparation, and also provide short and long-term financial strategies to make the organization run more smoothly. As a result, their business insights can help an organization reduce its costs, forecast and increase revenue and boost profits.

Accountants conduct a risk analysis and examine the accuracy of bookkeeper records and financial documents to determine if they are compliant with laws and regulations. Also, accountants are in charge of tax returns to ensure the tax bill is paid in a timely fashion.

After the 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 reports and financial statements and the proper accounts for the firm. 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).

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 is 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 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 works to 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 of 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.

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 like 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 as 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 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.

Hiring a part-time or full-time professional bookkeeper will cost more, but that depends on what financial or payroll services are 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.

Want to Skip The Hassle and Onboard Expert Accounting and Bookkeeping?

At Punch Financial, we specialize in providing high-growth companies with a modern accounting experience. Instead of hiring an accounting and bookkeeping team at great expense, you can outsource your financial back-end to a firm with proven results for a fraction of the cost. Each account is assigned a staff accountant, a Director, and a CFO.

Our mission is to help you streamline your accounting processes and back-office functions to provide you with actionable data to make you a more-prepared business owner. Let’s connect to give you a customized quote and free consultation. You have nothing to lose but so much to gain.

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