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What Is the Difference Between Accounting and Bookkeeping?

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When most people analyze the distinction between bookkeeping and accounting, they find it challenging to distinguish the two procedures.

While bookkeepers and accountants provide comparable functions, they aid your company at different stages of the financial cycle.

Bookkeeping is the recording of financial transactions and is more transactional and administrative in nature. Accounting is more subjective, based on bookkeeping data, providing insights into your company’s financial health.

In this informative and engaging read, we explain how accounting and bookkeeping differ and the unique hats bookkeepers and accountants wear.

the function of bookkeeping

Bookkeeping is the process of methodically recording daily transactions, and it is an essential element of obtaining the financial information required to operate a thriving company.

  • Keeping and balancing subsidiaries, general ledgers, and historical accounts
  • Recording financial transactions
  • Posting debits and credits
  • Making invoices
  • Preparing financial statements (balance sheet, cash flow statement, and income statement)
  • Keeping and balancing subsidiaries, general ledgers, and historical accounts.
  • Completing payroll

Keeping a general ledger is one of the most critical components of bookkeeping. The general ledger is a fundamental document in which a bookkeeper tracks sales and costs.

related: how historic bookkeeping can help your business thrive

This is referred to as posting. The more sales are made, the more often the ledger is updated. A ledger can be created with the help of specialized software, a computer spreadsheet, or a lined sheet of paper.

The size of the firm and the volume of daily, weekly, and monthly transactions frequently affect the complexity of an accounting system.

All sales and purchases your organization makes must be recorded in the ledger, and certain transactions necessitate further paperwork.

The IRS outlines which business transactions require supporting documents on their website.

the function of accounting

Accounting is a high-level process that generates financial models based on financial data from a bookkeeper or business owner. Accounting is a more subjective process than bookkeeping, which focuses on transactions.

Reconciliation in accounting tasks includes the following:

  • Creating adjustment entries (recording expenses that occurred but were not yet recorded in the accounting procedure)
  • Examining corporate financial accounts
  • Analyzing operational costs
  • Assist the business owner in understanding the financial ramifications of decisions.

Analyzing financial data to help you make business decisions is essential to accounting. As a consequence, you’ll have a better understanding of your business’s genuine profitability and cash flow.

Accounting converts information from the general ledger into insights illuminating the firm’s larger picture and progress. Business owners often hire accountants for tax planning, financial analysis, forecasting, and filing.

the difference between a bookkeeper and an accountant

Bookkeepers and accountants do comparable tasks but have distinct skill sets.

A bookkeeper records transactions and keeps you financially organized, whereas accountants advise on financial guidance, analysis, and tax assistance.

bookkeeper credentials

Bookkeepers are not required to have any academic training. To be effective, bookkeepers must be careful in their work and educated on crucial financial concerns.

Typically, an accountant or the small business owner whose records the bookkeeper is keeping supervises their work. As a result, a bookkeeper cannot refer to himself as an “accountant.”

accountants credentials

Accountants are often required to have a bachelor’s degree in accounting. Finance degrees are typically considered viable replacements for those lacking a specific accounting degree. Accountants, as opposed to bookkeepers, can get further professional certifications.

Accountants with sufficient experience and knowledge, for example, can get the Certified Public Accountant (CPA) credential, which is one of the most common types of accounting certificates.

To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and have professional accounting experience. The required certifications determine the cost of an accountant.

helpful resources: accrual basis vs cash basis accounting

3 indications that you require the services of a bookkeeper or accountant

Are you still unsure whether you need to engage someone to assist you with your books?

Here are three circumstances when you should hire a financial professional:

  • your taxes are too complicated to manage independently.

If you have several income streams, international investments, various deductions, or other factors, it’s time to engage an accountant. An accountant can help you save time and remain on top of critical things like payroll, tax deductions, and tax filings.

  • accounting consumes far too much of your time.

You are doing your business harm if you spend so much time on accounting activities that you cannot work on increasing your business or keeping existing clients satisfied.

In the long run, you may make more money if you leave the accounting to the professionals and concentrate on your growth potential.

  • your company is expanding.

Doing your accounting alone is acceptable; however, hiring someone to assist you may take time as it grows.

You may hire a bookkeeper once a month and a CPA to manage your taxes and balance your books. Then, when your bookkeeping requirements grow, hire someone.

Whether you hire an accountant, a bookkeeper, or both, be sure they’re qualified by requesting client references, checking for certifications, and administering screening exams.

are bookkeepers certified accountants?

Accountants must typically have a degree in accounting or finance to hold the job. They may then pursue further certificates, such as the CPA. Accounting professionals may also work as bookkeepers.

However, if your accountant handles your bookkeeping, you may be spending more than you should because an accountant is often paid more per hour than a bookkeeper.

further information: how to choose the right bookkeeping software for your business

The Bottom Line

The bookkeeper’s ordered financial records and appropriately balanced finances, together with the accountant’s prudent financial planning and accurate tax filing, directly contribute to the long-term prosperity of every firm.

Some business owners know how to manage their business finances independently, while others hire a professional accounting service provider to free up their time to focus on the areas of their business that they are passionate about.

Whatever option you choose, investing in your company’s finances, whether in terms of time or money, can only help it grow.

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