Bookkeeping and accounting are two business services that are often used interchangeably in the business world. To people who are familiar with these professions, they might appear to be the same. Although both services deal with numbers, their roles and functions are totally different.
Bookkeeping and accounting are two functions critical for every business. In summary, bookkeeping deals with the recording of financial transactions while accounting handles the interpreting, analyzing, classifying, summarizing, and reporting of financial data. Both services deal with financial data, but they differ in the way they process this data.
This article will discuss the main differences between bookkeeping and accounting, and what roles they play in the growth of your business.
Bookkeeping is responsible for identifying, measuring, and recording of financial transactions. Accounting, on the other hand, deals with summarizing, analyzing, and communicating financial transactions which were entered in the ledger account.
Bookkeeping is meant to keep proper and systematic records of all financial transactions, while accounting is designed to gauge the financial situation of the company or organization, and report the information to the management.
Accounting provides information that allows the management to make critical business decisions. Bookkeeping does not provide enough information to make business decisions.
4. Skills Required
Bookkeeping does not require any special skill sets, just a basic understanding of accounting principles. Accounting, however, requires special skills because of its analytical and complex role.
Bookkeeping does not require analysis since it only deals with recording tasks. Accounting, on the other hand, analyzes and interprets bookkeeping data, and then compile it into reports.
A bookkeeper handles basic keeping of the book and makes sure everything is recorded. They need to have enough financial knowledge to understand which details to record and to be accurate in their work. There is no educational requirement or certification ends, but most bookkeepers have an associate’s degree.
Bookkeepers are tasked with:
- Creating and sending invoices
- Organizing and issuing receipts
- Issuing payroll to employees and contractors
- Sending payments to vendors
- Posting debits and credits, usually in two separate accounts, as part of double-entry bookkeeping and maintaining the balance sheet
An accountant, on the other hand, requires formal schooling. They focus on the long-term financial goals of the business by making projections, setting goals, and creating recommendations to move the business forward financially.
Accountants are usually tasked with:
- Preparing financial statements, cash flow reports, income statements, and earnings projections
- Helping with accurate budget planning
- Preparing and filing taxes, including income tax, sales tax, and payroll taxes
- Acting as a financial counselor for how actions like consolidating debt or investments will affect the company overall
- Demonstrate overall profitability and growth through reports and models
Do You Need Both?
Depending on the size and needs of your business, you might find that you need both professionals to keep your business afloat. Big businesses usually have both an accountant and bookkeepers on staff. But if you think that your business can’t afford to hire both, you can hire out for just specific tasks or hire a dedicated accounting or bookkeeping VA for your business.