The Difference Between Bookkeepers and Accountants

Most people would find it difficult to describe the differences between accountants and bookkeepers. While both professions have many things in common, they differ in the ways that they help your business through the financial cycle.
Bookkeeping is a day today administrative duty largely responsible for recording financial transactions as they occur. Accounting is more analytical and an accountant uses the bookkeeping information to provide useful insights into the running of your business.
This article will examine the different functions of accounting and bookkeeping as well as explaining the key differences between the two roles.

Bookkeeping

The essential process of bookkeeping is consistently recording the daily business transactions of the business. The bookkeeper’s role is a critical function for a business.
Bookkeeping duties are made up of

  • Recording financial transactions as they occur
  • Posting credits and debits to various ledges
  • Generating (raising) invoices
  • Maintaining various accounts including general ledgers historical accounts
  • Balancing there is sledges
  • Completing payroll functions

The maintenance of general ledger it’s one of the core functions of bookkeeping. The general ledger is it core accounting a document where the bookkeeper records sales and expenses.This recording is called posting. The more sales that are made, the more often posts are made to the ledger. Given its simple nature, a general Ledger can be created using a lined sheet of paper, computer spreadsheets, or you can use specialised software for the purpose.
The size of the business and the number of transactions completed on a daily, weekly or monthly basis will determine how complex the bookkeeping system is. All transactions, sales and purchases must be recorded in the ledger. Some items may need supporting documentation. The IRS or other relevant taxation bodies will make it clear what business transactions require supporting documentation via their website.

Accounting

The accounting process makes use of the financial information compiled by a bookkeeper to produce detailed financial reports and models for the business.
Accounting is more analytical than transactional bookkeeping and as such, is more subjective.
The accountant will perform the following functions:

  • Make adjusting entries (locating and record incurred expenses that haven’t been recorded by the bookkeeper)
  • The preparation of financial statements for the company.
  • An analysis of operational costs.
  • The completion of income tax returns
  • Assisting the business owner in comprehending the consequences of financial decisions

The accounting process will collate key financial indicators to produce financial reports.
These reports should give a better idea of the underlying health of the business by giving a clearer picture of actual profitability and cash flow. Accounting takes the raw data provided in the ledger to paint a picture of the business and it’s progress. Accountants will often assist with financial forecasting, strategic tax planning and the filing of taxes.

Blurred Lines

In recent years the emergence of accounting and bookkeeping software has seen an interesting development in the traditional bookkeeping and accounting roles. Bookkeeping software has now evolved to the point where some of the traditional functions associated with accounting are done automatically by the software. An example of this is that bookkeeping software can provide the business with financial statements which has shifted the landscape a little in relation to traditional functions.

The Bookkeeping Role Versus The Accounting Role

While its useful to know the key differences between bookkeeping and accounting it’s perhaps more important to have an understanding of what credentials and qualifications bookkeepers and accountants possess so that you can know when to use which one.

The Bookkeeper

Usually bookkeepers need to have at least two year’s experience or an Associates degree. Good bookkeepers possess sound financial knowledge and display meticulous accuracy. In most cases the bookkeeper will be answerable to the small business owner or an accountant.

The Accountant

A qualified accountant usually has a bachelor’s degree in accounting, however, in some instances finance degrees are regarded as being adequate for accountants to practice.
Accountants may also require additional professional certifications when they have gained sufficient experience and education. They may apply for the title of certified public accountant (CPA). To gain this certification the accountant must pass the uniform certified public accountant exam and be deemed to possess sufficient experience as a professional accountant.

Summary Bookkeeping V Accounting

Bookkeeping Accounting
Records and categorises transactions Prepares adjusting entries
Posts credits and debits Financial statements prepared
Raises and sends invoices Completes income tax returns
Maintains General ledgers, Subsidiary Accounts and historical accounts Balances General ledgers and associated accounts provides financial analysis & strategic advice
Completes Payroll Recommends strategic tax planning
Keeps records Provides financial forecasts

The Bottom Line

The roles of the bookkeeper and accountant complement each other, The bookkeeper maintains accurate financial records that the accountant uses to provide useful analysis and strategic advice as well as filing accurate tax returns.
Some business owners opt for a hands-on approach when it comes to financial management and choose to manage their finances by themselves while others choose to use the services of a professional so that they can focus and what they do best. Whatever option is the best for you, it is true that investing time or money into the management of your business financials is a wise investment into the future health of your business.