“Bookkeeping” and “accounting” are two terms that are frequently employed in business operations where numbers are important. Even though these titles may seem the same, they refer to distinct positions within the financial management industry.
The responsibilities and differences that bookkeeping and accounting play in the entire framework of the financial system are clarified in this blog post.
Table of Content
What is Accounting?
The process of assessing, interpreting, summing, and reporting financial transactions is known as accounting. Financial statements provide an accurate synopsis of the financial activities throughout an accounting period.
Accounting aims to give all of its users—investors, creditors, employees, and the government—a comprehensive picture of the financial statements.
Based on an analysis of the financial data a bookkeeper collects, an accountant offers financial advice and significant business insights to owners of businesses.
Here are a few common accounting tasks:
- Analysing and evaluating data
- Creating financial reporting documents, such as tax returns, income statements, and balance sheets, as well as conducting audits and generating reports
- Supplying data for projections, industry trends, and expansion prospects
- Assisting the company owner in realising the consequences of financial choices
- Modifying entries
Advantages of Accountant
- An accountant gives useful advice per your company’s needs by bringing specialised knowledge and skills in financial concerns.
- They take care of the tax laws and regulations as per the business, keep the company out of legal issues, and reduce penalties.
- Accountants do in-depth financial research to make informed decisions about operational and strategic matters.
- Accountants employ tax planning and create strategies to minimise tax liabilities, maximising deductions and credits while ensuring compliance with tax laws.
- Accountants generate accurate financial reports on time to provide openness and responsibility to investors, stakeholders, and regulatory agencies.
Accountant credentials
A bachelor’s degree in accounting is often required for someone to be eligible to use the title of accountant. Finance degrees are frequently seen as a suitable alternative if one does not possess an accounting degree.
Unlike bookkeepers, accountants can also obtain more professional credentials. For instance, one of the most popular accounting designations is the Certified Public Accountant (CPA), which may be attained by accountants who have completed the required training and experience.
An accountant has to have professional accounting experience in addition to passing the Uniform Certified Public Accountant test to become a CPA. The cost of an accountant is determined in part by these necessary qualifications.
What is bookkeeping?
The practice of keeping track of and documenting every financial transaction in a company’s original ledger is known as bookkeeping. The bookkeeping procedure entails compiling and methodically arranging all of the business’s financial transactions in chronological order.
Bookkeeping is primarily concerned with a business’s daily financial transactions and operations. The accounting books are kept up to date and recorded by the bookkeepers. The original books of accounts contain records of every financial activity, including salary and other operations costs, investments, sales revenue, loans, interest income, and tax payments.
Since the books of account serve as the foundation for accounting, they must be current. The accuracy of a business’s accounting process depends on its bookkeeping quality.
The components of bookkeeping are:
- Keeping track of financial transactions
- Posting credits and debits
- Creating invoices
- Financial statement preparation (income statement, cash flow statement, and balance sheet)
- Keeping historical accounts, general ledgers, and subsidiaries balanced
- Payroll completion
Advantages of Bookkeeper
- Bookkeepers guarantee the accuracy of the recording of your financial transactions, giving accounting and financial analysis a solid foundation.
- A bookkeeper helps you manage cash flow effectively with regular updates on your financial status, ensuring you clearly understand your available resources.
- Hiring a bookkeeper may be economical as it lowers the possibility of costly financial mistakes and ensures that invoices are paid on time, preventing late penalties.
- Your financial records will remain more organised with the assistance of a bookkeeper, making it simpler to find and examine transactions as needed. In the case of an audit or tax season, this organisation is essential.
- Financial statements and reports, which are necessary for meetings with creditors and investors or for internal strategic planning, can be prepared by bookkeepers.
Bookkeeper credentials
Bookkeepers must complete a test, sign a code of conduct, and have 2,000 hours of work experience to obtain a certified public bookkeeper licence. To keep their licence, they must complete 24 hours of continuing education annually.
Generally speaking, bookkeepers do not need professional qualifications or licenses. Bookkeepers must be meticulous about correctness and educated about important financial subjects to succeed in their work. An accountant or a small business owner whose books the bookkeeper handles often supervises the bookkeeper’s work.
Accounting VS Bookkeeping
| Feature | Accounting | Bookkeeping |
| Definition | Accounting is the process of interpreting, classifying, analysing, summarising, and reporting financial data. | Bookkeeping is the systematic recording of financial transactions and the maintenance of financial records. |
| Purpose | To provide insights into financial health, facilitate decision-making, and ensure compliance with financial regulations. | To ensure accurate, chronological recording of financial transactions for operational and compliance purposes. |
| Scope | Broad, encompassing various facets of financial management, including strategic planning and analysis. | Narrower focus, primarily on the day-to-day recording of financial transactions. |
| Tasks | ⦁ Analysing financial ⦁ dataPreparing financial statements (income statements, balance sheets, etc.) ⦁ Conducting audits ⦁ Tax planning and filing Providing financial forecasts and advice | ⦁ Recording financial transactions ⦁ Posting debits and credits ⦁ Preparing invoices ⦁ Managing payroll ⦁ Maintaining and balancing ledgers, journals, and accounts |
| Decision Making | Plays a critical role in strategic decision-making by providing comprehensive financial insights. | Supports operational decisions by ensuring financial data is systematically recorded and readily available. |
| Complexity | Involves higher complexity, requiring analytical skills to interpret financial data and make projections. | Focuses on the systematic, routine process of recording transactions, requiring attention to detail. |
| Outcome | Produces financial statements and reports that offer insights into the financial status and performance of the business. | Results in organised financial records that serve as the foundation for accounting activities. |
| Regulatory Role | Ensures financial laws and regulations compliance, advising on tax implications and strategies. | Ensures accurate and timely recording of transactions, which is crucial for compliance but does not directly involve advisory. |
| Required Skills | Advanced analytical skills and knowledge of accounting principles, tax laws, and financial reporting standards. | Proficiency in data entry, knowledge of bookkeeping principles, and attention to detail. |
| Qualifications | Typically requires a higher level of education, such as a bachelor’s or master’s degree in accounting, and professional certifications (e.g., CPA). | It may require less formal education, though certifications (e.g., CPB) can enhance credibility and expertise. |
Conclusion
There are differences between bookkeeping and accounting concepts, as well as specific roles and contributions that need to be recognised. Companies may achieve success and sustainability, enhance financial performance, and make better-informed decisions with their assistance.