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31-Oct-2020 By - team

Do you need both bookkeeping and accounting services?

Bookkeeping and accounting are two functions which are extremely important for every business organisation. In the simplest of terms, bookkeeping is responsible for the recording of financial transactions, whereas accounting is responsible for interpreting, classifying, analysing, reporting, and summarising the financial data.

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Bookkeeping and accounting may appear to be the same profession to an untrained eye. This is because both accounting and bookkeeping deal with financial data, require basic accounting knowledge, and classify and generate reports using the financial transactions. At the same time, both these processes are inherently different and have their own sets of advantages. Read this article to understand the major differences between bookkeeping and accounting.

While bookkeeping and accounting are both essential business functions, there is an important distinction. Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for interpreting, classifying, analysing, reporting and summarising financial data. The biggest difference between accounting and bookkeeping is that accounting involves interpreting and analysing data, and bookkeeping does not.

What is Accounting?

Accountants, on the other hand, are mainly responsible for generally overseeing accounts and producing financial statements and tax returns that comply with the law.

Accountants need to have expert knowledge in financial laws and ethical issues as part of their role involves understanding data and providing financial advice that can affect a business.

Accounting “is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.” Accountants are professionals who perform different accounting functions, like financial statement analysis or audits- just to name a few.

Accountants prepare and inspect all sorts of different financial records. Their job is to make sure those records are accurate, find mistakes, and essential to assess the financial operations of the company to make sure things are running properly.

These types of professionals work in accounting firms, financial institutions, government agencies, nonprofit organisations, manufacturers, retailers, and more. Usually, an accountant has a college degree in finance or accounting.

There are different types of accountants – some that work for public accounting firms and handle multiple businesses while others might just focus on one. An accountant will adjust the entries made by bookkeepers at the end of each financial period. They do this by preparing adjusting journal entries and producing documents like profit and loss as well as balance sheet reports.

After assessing the findings, accountants help businesses make informed decisions.

What is Bookkeeping?

A bookkeeper is someone who will accurately record financial data of a business. The main purpose is to make sure that every entry is correct on a daily basis while keeping a log of all the transactions in the books.

By doing this, a bookkeeper can record and calculate income and expenses, make bank transactions, create sales invoices and raise purchase invoices.

Bookkeepers also make sure that the accounts of a business actually balance. They have the knowledge and skills to explain crucial financial information to business owners and make these reports actually make sense based on this information.

Bookkeepers are usually in charge of specific financial records. They usually work for small or mid-sized companies to make records of all of the financial transactions. These records can include purchases, payroll, sales, payment of bills, etc. People who keep books must have great math skills, superior attention to detail, and the ability to be discreet.

A bookkeeper’s job is to work with the company’s accounts to make sure that every penny of the company’s finances is accounted for. They’re usually the first ones called upon when the company wants to know where the money is going and are responsible for finding any discrepancies.

Some other responsibilities of bookkeepers include providing information in report formats, creating and updating daybooks, analysis reports and debtor reports.

Accounting vs Bookkeeping

Bookkeepers record financial transactions in chronological order on a daily basis. Because accounting software automates many of the processes, some bookkeepers in small organisations also classify and summarise financial data in financial reports. These bookkeepers are often referred to as full-charge bookkeepers. They make higher salaries than bookkeepers but lower salaries than accountants.

Accountants analyse financial transactions in financial statements and business reports following accounting principles, standards and requirements. Accountants analyse and interpret financial data to report the financial condition and performance of the business to company leaders to help them make informed business decisions.

Objectives

Since bookkeeping and accounting are categorised as two distinct processes, it only makes sense that they would differ in their ultimate objectives as well.

The primary objective of a bookkeeper is to record all financial transactions logically and systematically accurately. Generally speaking, bookkeepers record such financial activity chronologically. They use one of two major record-keeping systems, which we will discuss in further detail later on.

The main goal of an accountant is to determine the financial status or well-being of the company and pass this information on to the key stakeholders. Thus, accountants are not primarily concerned with the day-to-day tasks of bookkeeping (although these are essential) but are instead focused on the analysis and interpretation of all the financial data that has been compiled.

Similarities

Bookkeeping and accounting can appear to be the same profession to the untrained eye. Both bookkeepers and accountants work with financial data. To enter either profession, you must have basic accounting knowledge. Bookkeepers in smaller companies often handle more of the accounting process than simply recording transactions. They also classify and generate reports using financial transactions.

They may not have the education required to handle these tasks, but this is possible because most accounting software automates reports and memorises transactions making transaction classification easier. Sometimes, an accountant records the financial transactions for a company, handling the bookkeeping portion of the accounting process.

Differences

Taking a few accounting courses and developing a basic understanding of accounting will qualify you for a job in bookkeeping. To work in accounting, you must have at least a bachelor’s degree to become an accountant or, for a higher level of expertise, you can become a certified public accountant.

The difference between these two careers is mainly in education and responsibility. Accountants are responsible for more of the financial aspects of a company than a bookkeeper is. While a bookkeeper typically handles where the money comes in and goes out, an accountant is responsible for almost every aspect of the finances. They can handle taxes, assess risk, or make reports.

A bookkeeper’s job environment may also be more limited than an accountant’s. An accountant can work in many different places, like government agencies, financial institutions, and tax agencies. Bookkeepers, on the other hand, usually work for smaller companies. Larger companies and institutions have more use for an accountant.

Just a high school diploma and some knowledge about math can get you in the door when it comes to bookkeeping. Many bookkeepers go on to become accountants. Accountants must at least have an undergraduate degree, and higher positions may require more.

Careers in the financial world are only continuing to grow as companies, their money, and the economy grows as well. Accountants and bookkeepers help companies keep their finances on track and succeed. No matter the difference between accounting and bookkeeping, each one requires good math skills, attention to detail, and superior dedication.

An accountant is in charge of assessing and interpreting the financial data of a company, and for reporting on it. An accountant has a higher skill set than a bookkeeper, whose primary responsibility is handling the actual recording of the company’s financial transactions.

An accountant usually has a degree or certification (CPA) and is paid better than a bookkeeper. Typically, a bookkeeper reports to the accountant.

A bookkeeper does not require any formal training, however, a bookkeeper’s job is important. The information a bookkeeper is responsible for gathering and managing affects how an accountant will interpret the financial information of the company. Based on this information, the accountant provides recommendations to management or the company’s owners about spending, tax issues or other financial concerns.

Accountants are qualified to handle the entire accounting process, while bookkeepers are qualified to handle recording financial transactions. To ensure accuracy, accountants often serve as advisers for bookkeepers and review their work. Bookkeepers record and classify financial transactions, laying the groundwork for accountants to analyse the financial data.man using calculator with coffee and laptop

What Bookkeeping and Accounting Roles Typically Consist Of

We can’t speak for every single bookkeeper or accountant on the planet, but there are some typical duties that each role does, which is what makes them so different.

What’s important to know, though, is that some tasks bookkeepers and accountants do can vary between businesses. Especially in the case of smaller businesses, bookkeepers might do some basic accounting duties as there’s sometimes a bit of an overlap.

Typical Bookkeeping Duties

The duties of a bookkeeper vary, depending on the company. Here is a breakdown of the responsibilities typically associated with a bookkeeping role:

  • Processing and maintaining a payroll system.
  • Processing invoices.
  • Preparing initial financial statements.
  • Processing receipts, payments and other financial transactions.
  • Recording business transactions.
  • Managing accounts receivable and accounts payable.
  • Processing expense claims.
  • Filing and document management.
  • Chasing customers for payment.
  • Posting journal entries.
  • Preparing and filing VAT returns.
  • Providing basic tax advice.

A bookkeeper also must keep the information he processes confidential, as he will be privy to sensitive financial information, including payroll salaries.

Typical Accounting Duties

he duties of an accountant can be broken down into these areas:

  • Preparing adjusting entries.
  • Preparing financial statements and reports.
  • Completing income tax returns.
  • Financial analysis and strategy.
  • Tax strategy and tax planning.
  • Financial forecasting.
  • Organising budgets.
  • Analysing business performance.
  • Auditing.
  • Financial management advice.
  • Prepare business plans and cash flow forecasts.

The roles of accountants and bookkeepers vary from business to business. However, now you know that although the two often cause confusion, they’re actually quite different.

Even though it sounds like bookkeeping is a challenge, it’s quite simple to do once you’re using digital software.

The Shifting Landscapes of Bookkeeping and Accounting

Bookkeeping and accounting have been in existence since a very long time, and both fields have seen a tremendous amount of change in the way the operations are carried out. This trend will continue similarly in the future too. Some of the upcoming trends in the field of accounting and bookkeeping include:

 

Merging of Bookkeeping and Accounting Functions

The line between accounting and bookkeeping is slowly diminishing. It is interesting to note that with the advent of accounting and bookkeeping software, some parts of accounting are slowly absorbed into the bookkeeping process. At the same time, bookkeeping software is now capable of generating financial statements which were earlier part of the accounting process.

Bookkeeping to become Obsolete Slowly

While most businesses will still need a bookkeeper to keep the books, bookkeeping will become a lot more than just data entry, balancing bank ledgers, and reconciling bank statements. These functions will slowly diminish in the coming years and may even become obsolete, as most of the tasks will be handled by bookkeeping software.

Extending the Services

Newer technologies have persuaded bookkeepers and accountants to be open to technological advancements and explore emerging software options. It is an opportunity for bookkeepers to support their clients through this change, presenting value-added services such as payroll processing, credit card reconciliation, etc. with the help of the latest software.

Advent of Smartphones

More and more businesses are shifting their operations online, especially as smartphones and mobiles are becoming increasingly intuitive and easily available. Business owners want to access the data from anywhere in the world on different devices, and accounting and bookkeeping professionals are making sure the duly-generated reports are available online for their clients to access at all times.

More Efficient Services

Consulting and advising corporations are taking full advantage of these new technologies and services due to the advancement of the analytical tools, making bookkeeping and tax preparation services more efficient and significantly cheaper.

Skills Required for bookkeepers

Bookkeeping jobs generally do not require a special skill set or an advanced degree. However, bookkeepers should excel at basic math and arithmetic, be highly organised and detail-oriented, and work carefully to avoid mistakes. Bookkeepers can be certified through the Australian Bookkeepers Association (ABA).

Accounting positions generally require a bachelor’s degree in accounting or a related field, like internal auditing. Some accounting positions require a master’s degree.

Accountants will often elect to take the Uniform CPA Examination in order to receive their credentials as a Certified Public Accountant (CPA). Most state boards require accountants to acquire 2 years’ worth of work experience before they are eligible to sit for the exam. After obtaining their certification, CPAs will need to stay up to date with current laws and practices by periodically participating in continuing education courses, and renewing their license.

Types of bookkeeping 

There are two basic types of bookkeeping processes: single entry and double entry.

Single-entry systems involve only one record for each transaction. They are mainly focused on transactions related to cash receipts and disbursements. This is a simple record-keeping system; however, since accounts cannot be reconciled, the potential for fraud is high.

Double-entry systems involve two records for each transaction: a record of one account being credited, and of one being debited. While much more complex than the single entry method, the double-entry process adheres to Generally Accepted Accounting Principles (GAAP) and is, therefore, more secure and comprehensive in its scope.

In contrast with the two main categories of bookkeeping mentioned above, accounting positions cover a wide range of important functions. These include the following types of accounting:

  • CPAs
  • Forensic accountants that are tasked with uncovering omissions, errors, or fraud from a thorough analysis of financial records
  • Auditors that act as a third party safeguard against fraud and embezzlement
  • Staff accountants, known as the generalists of the accounting world

As we have seen, while there are major differences between bookkeeping and accounting, both of these roles are critical to sustainable business success. Of course, it is important to fill both positions with highly trained and experienced professionals in order to reap the full benefits that come from such services.

Can Bookkeepers Call Themselves Accountants?

An accountant typically has a degree and relevant work experience, however, there is no formal certification process for becoming an accountant. A bookkeeper could call himself an accountant, but it would be inadvisable to do so unless he had the relevant education or some serious working experience that included the various facets of accounting (as listed above).

A bookkeeper cannot call himself a CPA (Certified Public Accountant) unless he achieves the designation. A CPA is earned after completing specific educational and work requirements and passing an exam. Qualifications for becoming a CPA vary from state to state.

Do Accountants Do Bookkeeping?

Yes, they can and do. Some small companies may not have an official bookkeeper so that an accountant will take on the responsibilities of a bookkeeper too. Or the bookkeeping duties may be assigned to an accountant with less work experience.

Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for interpreting, classifying, analysing, reporting and summarising financial data. The biggest difference between accounting and bookkeeping lies in the analysing and interpreting the financial data.

Nevertheless, every business and not-for-profit entity needs a reliable bookkeeping system based on established accounting principles. Organised financial records and balanced finances produced by the bookkeeper along with smart financial strategy and accurate tax filing by the accountant will contribute to the long-term success of your business.

 

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