When it comes to the financial aspects of a business, terms like bookkeeping and accounting are often used interchangeably. However, while bookkeepers and accountants share common goals and responsibilities, they support your business in distinct ways — and in different stages of the financial cycle.
Here, we go over the distinct functions of accounting and bookkeeping, highlighting the unique roles each can play within your business.
What is bookkeeping?
Bookkeeping is the systematic process of recording and organizing a company's finances. It involves maintaining accurate records of income, expenses, assets, and liabilities, ensuring that a business's financial data is up-to-date.
Bookkeepers are solely focused on numbers and data. They perform consistent, routine calculations, often using preaccounting software, to ensure transaction histories are accurate and ready for analysis, but they don’t do the analyzing themselves.
What is accounting?
Accounting is the broader financial discipline that is all about analyzing, interpreting, and reporting a company's financial transactions and overall financial health. It involves the process of understanding and summarizing financial data, making sense of the numbers, and providing insights into a business's performance and profitability.
Accountants not only record financial transactions but also create financial statements, conduct audits, and offer strategic financial advice to help organizations make informed decisions.
What’s the difference between bookkeeping and accounting?
The difference between bookkeeping and accounting lies in the responsibilities and duties of each role. Here’s a simple way to make sense of it: bookkeepers are focused on the minutiae, laying the financial groundwork by recording numbers and data. Then, accountants easily step in and use that data to offer big-picture insights and strategic recommendations to help your business grow.
Responsibilities of bookkeepers
Bookkeeping focuses primarily on the day-to-day transactional activities of a business. Their main objective is to ensure accurate recording of all financial transactions, which forms the foundation for effective accounting.
Key duties and responsibilities of bookkeepers include:
Recording financial transactions: Keeping detailed records of daily financial transactions, including sales, expenses, and receipts
Managing ledgers: Maintaining the general ledger, an essential document where all financial transactions are recorded
Handling invoices: Generating and processing invoices and managing accounts receivable and payable
Reconciling bank statements: Regularly reconciling bank statements with internal records to ensure accuracy
Managing payroll: Overseeing payroll processing and ensuring accurate and timely employee payment
Maintaining records: Keeping accurate and comprehensive financial records, which are critical for both internal decision-making and external reporting
Responsibilities of accountants
Accountants step in where bookkeepers leave off. They analyze the financial data recorded by bookkeepers to provide insights and strategic advice. Their expertise ensures compliance with various financial regulations and aids in making informed financial decisions that impact the company's long-term success.
Key duties and responsibilities of accountants include:
Analyzing financial data: Reviewing and interpreting financial statements to understand the business's financial status
Preparing tax returns: Managing and preparing tax documents, ensuring compliance with tax laws and regulations
Conducting audits: Performing internal or external audits to verify the accuracy of financial records and compliance with laws
Financial forecasting and planning: Developing forecasts, budgets, and financial models to assist in long-term financial planning
Advising on financial decisions: Providing insights and recommendations on financial management, investment opportunities, and cost-reduction strategies
Ensuring legal compliance: Ensuring all financial practices adhere to government regulations and standards
Managing risk: Assessing financial risks and implementing strategies to minimize their impact on the business
Signs it’s time to hire a financial professional
As your business evolves, so do your finances. Below, we’ll walk you through three signs it might be time to hire a bookkeeper or an accountant to help you manage your books and plan for the future.
1. You’re spending too much time on financial tasks
If managing your business's finances is eating up a hefty portion of your time and headspace, it might be time to hire a bookkeeper. They can handle day-to-day financial tasks, allowing you to sit back and focus on core business activities.
A bookkeeper can efficiently manage transactions, pay bills, and keep your financial records in order. Additionally, integrating a tool like Expensify can automate expense reporting and tracking —reducing the workload for everyone involved.
2. You’re noticing errors in your books
Errors in your financial records are a red flag indicating the need for professional help. Hiring a bookkeeper helps you ensure accurate and up-to-date record-keeping, which forms the foundation of your financial system and sets accountants up for success.
Relying solely on manual processes can be faulty, so implementing tools like Expensify to help categorize expenses, maintain meticulous records, and prevent discrepancies can also be beneficial.
3. Your business has grown
With growth comes more responsibility — and more financial complexity. At this stage, both bookkeepers and accountants can be invaluable to your business.
A bookkeeper manages the increased volume of transactions and ensures your financial records scale with your business. An accountant offers strategic guidance on financial management, tax planning, and regulatory compliance. With their combined expertise, you can confidently focus on expanding your business, knowing that your finances are in capable hands.
Required credentials for accounting vs. bookkeeping
When it comes to bookkeeping, formal education isn't always a necessity, but it definitely adds value. Many bookkeepers have an associate degree in business or accounting, and some even hold bachelor's degrees. However, practical experience and a keen eye for detail can often be enough to kickstart a career in bookkeeping.
In contrast, the accounting world typically requires a higher level of education. Accountants generally hold at least a bachelor's degree in accounting or a related field. For those looking to climb higher, becoming a Certified Public Accountant (CPA) is a common goal. CPAs are recognized for their expertise in accounting principles and practices, making them highly sought after in various sectors of the business world.
While practical experience is essential, the formal education and credentials of accountants and bookkeepers bring an added layer of expertise, reliability, and strategic value to a business. This investment in qualified financial professionals can lead to more effective financial management, ultimately contributing to the success and growth of your business
Common questions about bookkeeping vs accounting
Still stumped about the difference between bookkeeping and accounting? This FAQ section can help you find the answers you need.
What are the three types of bookkeeping?
The three types of bookkeeping are single-entry bookkeeping, double-entry bookkeeping, and computerized bookkeeping. Let’s break them down below.
Single-entry bookkeeping: This system is the simplest form, suitable for small businesses with minimal transactions. It involves recording each transaction only once, either as an income or expense.
Double-entry bookkeeping: This is a more complex system where every entry to an account requires a corresponding and opposite entry to a different account, called debits and credits. It's suitable for larger businesses with more complex financial needs.
Computerized bookkeeping: This modern approach uses software and technology to handle bookkeeping tasks, offering more flexibility and often integrating with other business tools for efficiency.
Can a bookkeeper prepare financial statements?
Yes, a bookkeeper can prepare basic financial statements. These statements, such as the income statement and the balance sheet, are derived from the regular bookkeeping work they perform, like recording daily transactions and ensuring all financial data is accurate and current.
However, when it comes to more complex financial reporting and analysis, an accountant's expertise is typically required.
Bookkeeping blues? Accounting aches? Expensify to the rescue!
Whether your business needs the magic touch of a bookkeeper to sort through your financial data or the strategic insight provided by an accountant, Expensify — the preferred partner of both the California and Texas CPA State Societies — can help make money matters simpler.
With the right tools on your team, bookkeepers and accountants alike can streamline their workflows, reduce the risk of errors, and focus on providing more value to your business.
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