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Understanding The Difference Between Bookkeeping & Accounting

Understanding The Difference Between Bookkeeping & Accounting

Accounting and bookkeeping are vital functions for your business, but they are not the same, contrary to popular belief. To help shed some light on this topic, let's explain the difference between accounting and bookkeeping and look at the two functions.


What is the difference between accounting and bookkeeping?

Bookkeeping generally refers to keeping day-to-day financial records, i.e., keeping records in order. Accounting is a high-level process and refers to handling accounting data and its use for specific purposes, such as the preparation of tax returns.


What is Bookkeeping?

Bookkeeping is the process of recording and storing all day-to-day financial transactions made by a business, individual, or nonprofit organization. This is necessary to collect financial information that the accountant can use to perform various functions.

Keeping the general ledger is the key role of the bookkeeper or the individual in charge of bookkeeping. This is the base document, usually a spreadsheet, in which all income and expenditure transactions are recorded. All data should be recorded chronologically or dated to ensure accurate and easy-to-find details.


Common bookkeeping tasks

To better understand this feature, let's look at some common bookkeeping tasks that almost every business needs to perform:

  • Completing payroll;

  • Create invoices and deliver them to customers;

  • Maintaining the general ledger

  • Monitoring of unpaid invoices, as well as the recording of those that have been paid;

  • Posting of debts, such as expenses and credits, like account receivable

  • Preparation of financial statements;

  • Recording of financial transactions;


Can a small business do its own bookkeeping?

Entrepreneurs often ask if they can do their bookkeeping instead of outsourcing. Although most business owners can handle this task, especially with bookkeeping software such as Quickbooks, it can be time-consuming and disruptive to your business growth. Companies turn to bookkeeping and third-party accounting to track your finances, save time, and improve accuracy.


What is Accounting?

As mentioned above, bookkeeping refers to day-to-day record-keeping, while accountants are responsible for high-level analysis and implementation of the financial data collected by the bookkeeper. Often, small businesses, entrepreneurs, and nonprofits do their bookkeeping but outsource the accounting to an accounting firm to analyze the company's financial condition.


Common accounting tasks

As with bookkeeping, accountants have specific tasks to provide to the business or its clients.

  • Analyze financial statements, including cash flow, balance sheet, and income statement, to determine the organization's financial health.

  • Analyze operating costs to find opportunities to reduce losses.

  • Complete tax returns

  • Look for highly profitable areas versus areas that cost money or are not profitable to show the company where to focus its efforts.

  • Provide detailed presentations to the business owner, shareholders, or management, showing an overview of the income statement and other financial details.

Accountants are responsible for various tasks to improve overall business operations. You must work with an accounting service provider with years of experience with businesses of various sizes.


Similarities and Differences Between Bookkeepers and Accountants

We have described the main differences between bookkeeping and accounting above.

For clarity, here is a brief overview of the similarities and differences between these two features:

Similarities:

• Work with financial information to improve the financial situation of your business

• Both roles require basic accounting knowledge

• Both are tax compliant

Differences:

ROLES AND RESPONSIBILITIES

Bookkeeper

  • Keep track of your income and expenses

  • Prepare the general ledger

  • Record financial transactions

Accountant 

  • Analyze and interpret financial data

  • File tax returns

  • Use general ledger and general ledger information to prepare financial statements.


QUALIFICATIONS

Bookkeeping

Although knowledge of a wide range of financial topics and transactions and attention to detail are necessary, they are no formal requirements to become a bookkeeper.

In most cases, the work of a bookkeeper is supervised by an accountant or a small business owner.


Accounting 

Generally, an accountant must have a degree in accounting or finance to be eligible for this degree.

Unlike bookkeepers, there are various professional certifications that accountants can earn. Examples include AAT, ACA, ACCA, and CIMA accounting qualifications.


Summary

Accounting and bookkeeping are two different functions despite both having overlapping responsibilities and roles. We hope our guide has helped clarify the differences and similarities between bookkeeping and accounting.

Now that you understand the differences, it's time to decide on the next steps: Should you manage your finances, delegate the work to a finance professional, or opt for accounting software?

This decision is personal and depends on your business needs and goals. If you need help, please visit taxprofessionals.com or contact our team with any questions you may have.


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