When most people consider the distinction between bookkeeping and accounting, they find it difficult to distinguish between the two processes. While bookkeepers and accountants have similar purposes, they provide assistance to your firm at various points of the financial cycle.
Simply speaking, bookkeeping is concerned with recording financial transactions and is more transactional and administrative in nature. Accounting is more subjective, providing insights into your company’s financial health based on bookkeeping data.
We’ll explain the functional differences between accounting and bookkeeping, as well as the roles of bookkeepers and accountants in this article.
Bookkeeping is the practice of recording daily transactions in a regular manner, and it is an important part of acquiring the financial information required to manage a successful business.
Bookkeeping consists of the following steps:
- Keeping track of financial transactions
- Debits and credits must be posted.
- Creating invoices
- Financial statement preparation (balance sheet, cash flow statement, and income statement)
- Keeping track of and reconciling subsidiaries, general ledgers, and historical accounts
- Payroll completion
One of the most important aspects of bookkeeping is keeping a general ledger.
The general ledger is a basic document in which a bookkeeper records the sums received from sales and expenses. This is known as posting. The more sales performed, the more frequently the ledger is posted. A ledger can be made using specialized software, a computer spreadsheet, or even a lined sheet of paper.
The complexity of an accounting system is frequently determined by the size of the business and the amount of transactions processed on a daily, weekly, and monthly basis. All sales and purchases performed by your company must be documented in the ledger, and certain transactions require accompanying documentation.
On its website, the IRS specifies which business transactions necessitate supporting documentation.
Accounting is a high-level process that produces financial models using financial data compiled by a bookkeeper or business owner.
Accounting is a more subjective process than bookkeeping, which is primarily transactional.
Accounting consists of the following responsibilities:
- Creating adjustment entries (recording expenses that occurred but have not yet been documented in the bookkeeping procedure)
- Examining financial statements for a company
- Analyzing operational costs
- Preparing income tax returns
- Assisting the business owner in comprehending the implications of financial decisions
Analyzing financial data to assist you make company decisions is an important element of the accounting process. As a consequence, you’ll have a greater knowledge of your company’s true profitability and cash flow.
Accounting transforms information from the general ledger into insights that highlight the wider picture of the business and the company’s growth. Accountants are frequently sought out by business owners for assistance with strategic tax planning, financial analysis, forecasting, and tax filing.
Because bookkeeping and accounting are two distinct procedures, it stands to reason that their ultimate goals would differ as well.
A bookkeeper’s primary goal is to accurately record all financial transactions in a logical and methodical manner. In general, bookkeepers maintain track of such financial transactions chronologically. They make use of one of two major record-keeping systems, which we shall go over in further detail later.
An accountant’s principal purpose is to determine the company’s financial health or well-being and to communicate this information to important stakeholders. Thus, accountants are not primarily concerned with day-to-day bookkeeping chores (though they are necessary), but rather with the analysis and interpretation of all financial data that has been accumulated.
Bookkeepers Need Different Skills Than Accountants
Bookkeeping positions typically do not necessitate a specialized skill set or a graduate degree. Bookkeepers should excel at fundamental math and arithmetic, be extremely organized and detail-oriented, and work meticulously to avoid errors.
The National Bookkeepers Association (NBA) certifies bookkeepers. They can also become a Certified Public Bookkeeper by joining the National Association of Certified Public Bookkeepers (NACPB).
A bachelor’s degree in accounting or a similar discipline, such as internal auditing, is typically required for accounting positions. A master’s degree is required for several accounting positions.
Accountants frequently choose to take the Uniform CPA Examination in order to obtain their certification as a Certified Public Accountant (CPA). Most state boards require accountants to have two years of job experience before they may sit for the exam. Following certification, CPAs must keep up to date with current laws and practices by engaging in continuing education courses and renewing their license on a regular basis.
Accounting and Bookkeeping Types
Bookkeeping processes are classified into two types: single entry and double entry.
Each transaction in a single-entry system requires only one record. They are primarily concerned with transactions involving cash receipts and disbursements. This is a straightforward record-keeping method; but, because accounts cannot be reconciled, the possibility of fraud is considerable.
For each transaction in a double-entry system, two records are created: one for each account that is credited and one for each account that is debited. While significantly more complicated than the single-entry approach, the double-entry method follows Generally Accepted Accounting Principles (GAAP) and is thus more secure and comprehensive in its scope.
Accounting roles, in contrast to the two basic types of bookkeeping outlined above, include a wide range of critical functions. Accounting types include the following:
- Forensic accountants who are responsible with identifying omissions, errors, or fraud in financial documents through careful examination
- Auditors who operate as a third-party check for fraud and embezzlement
- Staff accountants, sometimes known as accounting generalists
Importance of Bookkeepers and Accountants In Your Business
While there are significant differences between bookkeeping and accounting, both professions are crucial to long-term corporate success. Of course, in order to realize the full benefits of such services, both jobs must be filled with highly skilled and experienced individuals.
Contact Today CFO for a free consultation if you are a business owner in need of bookkeeping and/or accounting services. Once we understand your existing situation, we can devise a one-of-a-kind solution that will allow you to focus on your core talents while we manage all of your bookkeeping and accounting requirements.