What is the Difference Between Bookkeeping and Accounting?
Small businesses need to ask important questions, such as ‘What is the difference between bookkeeping and accounting?’ The bottom line is both are needed to corral financial records and understand them. Critical financial decisions get made based on the different approaches. And the results from accounting and bookkeeping efforts blend together to make your business more efficient.
Bookkeeping Vs. Accounting
Bookkeepers handle recording and maintaining financial information. Recording daily transactions is part of what the bookkeeping team does. They handle the day-to-day business activities.
Accounting is about generating reports. They take on summarizing, analyzing, and interpreting the bookkeeper’s work. Accountants cover financial topics like cash flows. Accounting supplies a better understanding of the raw data supplied by bookkeeping.
How Does a Bookkeeper Manage Financial Transactions?
A bookkeeper is responsible for corralling financial data. Here’s a list of five things a bookkeeping service should include.
Bookkeepers record transactions – The bookkeeping process covers recording important transactions. Like invoice collections and customer payments.
Bookkeepers look after budgeting – This is another part of the bookkeeper’s role. They can create a budget specific to your company from financial reports.
Bookkeepers look after payroll – They can help you make financial decisions by collecting data. A small business owner can get info on current and upcoming payroll expenses.
Bookkeepers look after forecasting – Bookkeeping information can determine the growth rate of your business. By studying increased traffic, new accounts, and other financial records.
Bookkeepers manage your cash – Their work integrates with bank statements to help make financial decisions about where cash is going.
How Does an Accountant Work With Financial Data?
Accounting procedures are a little different in the way they handle financial data. Here’s what you should expect, even from a basic accounting service.
Financial Accounting – An accountant will generate reports from internal financial statements. An accounting professional needs to understand GAAP and IFRS standards.
Accounting for Taxes- A certified public accountant does a number of tax returns. They have the expertise required for compliance with tax regulations. These tax preparation services help business owner file their taxes.
Public Accounting – An accountant can supply advice and consulting services to a company. As well as audit, review, and prepare a financial statement like a balance sheet or an income statement.
Forensic Accounting – An accountant needs sufficient experience to tackle this category. A company doesn’t always need a full-time accountant for this. An auditor can reconstruct financial records. This financial position is often found in the insurance industry.
Wondering how to hire an accountant for your small business? Consider going digital instead. Here’s a list of the best accounting software for small business.
How is the Accounting Process Different from Bookkeeping?
Small businesses need to be clear on the difference between bookkeeping and accounting. Here are five differences between what bookkeepers and accountants do.
1. Accountants Prepare Financial Statements
Accountants prepare a variety of financial statements. These include cash flow statements, balance sheets, and income statements. They are tasked with generating financial reports from bookkeeper records. This is a big part of accounting services for small businesses.
2. Bookkeepers Record Financial Transactions
Bookkeepers are in charge of recording financial transactions. Like payments and expenses.
3. Accountants Have A License
Accounting tasks require compiling bookkeeping records. Becoming a licensed CPA in 50 states requires credit hours of coursework and a written exam.
4. Bookkeepers Don’t Require A Degree
Here’s another area where bookkeeping and accounting differ. A high school degree with basic communication writing and math skills can land you a bookkeeping job.
5. One Gathers The Data and The Other Sorts It
Accounting and bookkeeping are two different disciplines working to the same end. Bookkeepers gather up all the pieces of data, then professional accountants sort through it putting it into reports.
How to Decide Between a Bookkeeper and Accountant
You might not need both of these professionals to make critical business decisions. These tips will help you decide whether bookkeeping will do. Or if you have legitimate accounting needs.
Looking to Make Proper Decisions About Your Business?
A company will generally need an accountant. One of the main differences is an accountant produces financial statements. Like a cash flow statement that can tell you where the money is going and how to expand. Historical accounts can help you to see patterns.
Looking for Just a General Ledger?
Maybe you just need to corral your bank statements and expense receipts. You might only need bookkeeping data if you use an online service to file taxes. A key part is understanding how your finance process works.
Looking to Keep Things Simple?
If you’re a sole proprietor, you might be drawn by the bookkeeper’s role. It comes at an affordable price. Maybe you only need basic financial support like recording invoices and payments.
Looking to Go Public?
The accountant has the special skills you’ll need. Financial reporting needs to go up a notch when you’re looking for an IPO. They can prepare financial documents to attract investors. Their formal education building on a bachelor’s degree makes a difference.
When to Hire a Bookkeeper or Accountant
We have gone over the differences between bookkeeping and accounting. Here are a few words on choosing a bookkeeper or accountant.
Maybe you’re doing your own bookkeeping and it takes up too much time. You can save by hiring a bookkeeper.
If your company is small, you can get away with the bookkeeper. Likewise, if you’re a sole proprietor. Look for double-entry bookkeeping where the debits and credits equal out. This is more accurate than a single entry.
On the other hand, you’ll need the special skill of an accountant if you’ve experienced rapid growth.
A company that needs professional financial reporting needs an accountant.
Do Accountants Do Bookkeeping?
Yes. Accountants can do bookkeeping but it’s generally better to separate the two categories for small businesses. Bookkeepers and accountants can work together but they have different skills.
The main difference is an accountant usually has more education and a bigger skill set than a bookkeeper.
Image: Envato Elements
This article, “What is the Difference Between Bookkeeping and Accounting?” was first published on Small Business Trends