Bookkeeping vs. Accounting: What’s the Difference?
Bookkeeping vs. Accounting the difference is they support your business in different stages of the financial cycle. Bookkeeping is the process of organizing and recording all financial data for a company into a database, whereas accounting is concerned with the summarizing, analysis, consultation, and reporting of that recorded financial data to business owners and investors.
Bookkeepers have to pay attention to the minutest of details while recording the day-to-day financial transactions, whereas accountants use that record to conduct audits and forecast future needs for the business. The two careers are similar, with both accountants and bookkeepers working side by side, and require many of the same attributes and skills.
Bookkeeping Vs. Accounting:
However, there are a few differences between bookkeeping and accounting. Some of the areas in which they differ are:
The decisions taken by management cannot be made on the basis of the data provided by bookkeeping.
However, management can make critical decisions for the business based on the data provided by accountants.
Bookkeeping is mainly concerned with keeping records of financial transactions in a systematic and proper manner.
The objective of accounting on the other hand is to study the financial situations and make informed decisions about the business keeping all the relevant information in mind.
Preparation of financial statements
The bookkeeping process does not prepare any financial statements; merely records the transactions.
Accountants help prepare the financial statements for a business.
The process of bookkeeping does not require professionals to have any particular skill set.
Accountants, however, need to have a special skill set because of accounting’s complex nature and its analytical process.
The Bureau of Labor Statistics (BLS) predicts a 5% reduction in jobs for bookkeeping clerks between 2021 and 2031.
For the upcoming several years, job growth and pay for accountant and auditor are anticipated to increase. The Bureau of Labor Statistics (BLS) forecasts a 6% increase in employment in this sector between 2021 and 2031.
The bookkeeping process does not require any analysis.
In accounting, the information provided by bookkeeping is used to analyze and interpret the data in order to compile it into a report format.
Bookkeeping has two types; single entry and double-entry bookkeeping.
The accounting department is concerned with two types of responsibilities which are the preparation of a company’s budget and palling of loan proposals.
Bookkeepers can start bookkeeping right after graduating from high school. They do however need to be accurate in what they do and have a certain grip on financial topics. The work they do is often overseen by an accountant.
Accountants need to have a certain experience and certification to start this job. With due experience, they can obtain the title of Certified Public Accountant (CPA).
What does a bookkeeper do?
Anytime a business spends or earns money, those financial transactions need to be organized and classified. This whole process is called bookkeeping. It involves tracking the revenue, expenses, assets, and debts in your business on a daily, weekly, or monthly basis. This information gets turned into financial statements that allow you to make smart business decisions, secure loans, and process and file your taxes. Bookkeeping encompasses everything that is needed to record the financial activity of your business.
A bookkeeper is primarily responsible for keeping track of all the income and expenses and making sure that these transitions are accurately reflected in the business’s books. Some of the tasks a bookkeeper can help with are:
- Tracking down receipts from the employees
- Entering of data
- Categorization of transactions
- Reconciling bank statements
- Sending and following up on invoices
- Managing the accounts payable.
The time spent on doing the tasks listed above depends on the type of business and how it operates. It could either take a few hours, a week or even months depending on the business. If you run a service-based company like a consultation firm, the bookkeeper might have to send out 2-3 invoices per month and make a handful of purchases apart from the recurring spending of rent and payroll. For such purposes, a remote or part-time bookkeeper could also easily manage the tasks.
However, if you own a construction company, you will have to oversee a dozen transactions every day and you will have to make transactions with the contractors and suppliers on a daily basis. You might also need complex reports in order to track each individual project’s spending. Depending on how many projects you take on, the transactions can get a lot more complex and difficult to classify. As compared to a service-based company, such a firm requires an in-house business bookkeeper that is aware of the business inside out and can stay updated with the tasks.
The role of a bookkeeper does not change dramatically with the changing complexity of a business. The main responsibilities still remain the same i.e to make sure that the financial transactions are accounted for and classified properly in the books.
What does an accountant do?
An accountant is concerned with analyzing the financial data recorded by bookkeepers and providing business owners with financial advice and insight based on that information. Some tasks accountants handle are:
Help with the start-up
If you are just getting into the business of accounting and do not have any prior experience or much information, you will need to know a little bit about accounting.
Accountants can provide you with an expert opinion and strategies on finances. They can help you formulate business plans and instruct you on how to manage the business’s finances from the very start. If you start missing information and making mistakes early on in your business, you will have a lot of catching up to do later on, and it is going to cost you a lot.
The decision of the business’s legal structure
You can structure your business in a variety of different ways. There are a number of options for you to choose from; be it a partnership, sole proprietorship, organization, corporation, or LLC. It is your choice to decide which option seems most suitable to you. Accountants can help with the consideration of all options which concern legal structures and help you choose the best option for your business after considering all the pros and cons.
Help with taxes
Business owners are often not aware of the filing practices and do not even have the time to file taxes. Accountants can make sure that a business is paying the right taxes for the particular industry and business type. It’s one of the ways to ensure that your business is not fined with any undue penalties. Accountants are useful for steering clear tax returns, and tax implications and can help claim tax credits.
Reviewing company finances
Accountants keep track of any money that you either own to somebody or are owed by others. They make sure that the cash flows in steadily, with knowledge about what to do with that money, and ensure that the business is running smoothly. Accountants can also help in identifying the areas where revenue is coming from, and where the expenses are made so the profit can be sustained.
Which one do you require?
You should have a good concept of the professionals who will serve your company’s needs as a business leader. Therefore, it’s critical to understand if you require a bookkeeper or an accountant to manage your finances.
That could be challenging because the jobs and responsibilities might overlap. So, to assist you in making a decision, here are a few suggestions.
You might think about hiring a bookkeeper:
- for keeping track of daily transactions
- if you have a simple business structure and few inventories
- to cover a reasonable pay budget (bookkeepers make less than accountants)
Hiring an accountant:
- To facilitate tracking and logging complex transactions
- If your inventory is larger
- If you have the extra money
Accounting provides significantly more opportunities for salary growth and upward mobility over the long term. Although more schooling is needed to compete in the field, the potential payout is bigger overall.
If you are interested in the profession but not totally committed and want to test the waters, bookkeeping is a fantastic place to start. If you want a nice job with a reasonable income and decent security but aren’t necessarily seeking a long-term career, you might make an excellent candidate for bookkeeping.
Entry requirements are substantially lower for bookkeeping, and there is less strong rivalry for jobs.
Why My Count Solutions?
My Count Solutions is handled by talented accountants, bookkeepers, and CPAs that provide an affordable service for managing your business. It also provides financial consultation, as well as helps in running your business smoothly without having to stress about taxes. It provides you with the option of remote bookkeeping and also provides tax preparation services, audit representation services, and payroll services, making the accounting process easy and efficient for any business.
Bookkeepers and accountants help in keeping the records organized and making the best of those records by using them to make better decisions for the company, which can help them grow and progress efficiently. They are very essential parts of the same coin, i.e a business.