When most people consider accounting and bookkeeping, they would have a hard time describing the differences between these two processes. Although accountants and bookkeepers do share common goals, your business is supported by them in different phases of the financial cycle.
When it comes to bookkeeping, it is more administrative and transactional and is concerned with accurately recording financial transactions. On the other hand, accounting is more subjective in nature, providing you with insights on your business that are based on information from your bookkeeping.
The Role of Bookkeeping
Bookkeeping involves recording daily transactions consistently and
accurately. Outsourcing bookkeeping can help with this. Bookkeeping is an important component in being able to build a financially
Bookkeeping involves the following:
- Posting credits and debits;
- Recording financial transactions;
- Completing payroll;
- Generating invoices;
- Balancing and maintaining historical accounts, general ledgers, and subsidiaries.
One of the main functions of bookkeeping is to maintain a general ledger. A bookkeeper records expense receipts and sales into this basic document. The activity is called posting. The more expenses that are incurred and the more sales that are made, the more frequently the general ledger will be posted in. You can create a ledge using sheets of paper, a computer spreadsheet, or specialised software.
How complex a bookkeeping system needs to be will often depend on how large a business is and the number of transactions it needs to complete on a monthly, weekly, and daily basis. All purchases and sales that your business makes must be recorded in your ledge, and supporting documents are needed for certain items.
The Role of Accounting
Accounting is a type of high-level process where financial information that is compiled by the business owner or bookkeeper is used to generate financial models based on this information.
The accounting process is much more subjective compared to bookkeeping, which is mainly transactional.
Accounting involves the following:
- The preparation of company financial statements;
- Prepare adjusting entries (record expenses that have been not recorded by the bookkeeper);
- Prepare tax returns;
- Analyse costs of operations;
- Help the business owner understand the impact of their financial decisions.
The accounting process generates reports that bring together key financial indicators. This results in a better awareness of the company’s cash flow and an improved understanding of its profitability. Accounting transforms ledger information into statements that provide an overview of the business, as well as the path that it is progressing on. Often business owners will rely on accountants for assistance with tax filing, financial forecasting, and strategic tax planning.
The Accountant Role Versus the Bookkeeper Role
Sometimes the same work is done by accountants and bookkeepers. However, the first task of a bookkeeper is usually to record transactions and to ensure you stay financially organised. On the other hand, accountants provide analysis, consultation and are more qualified to offer tax advice.
Bookkeepers are typically not required to have completed any formal
education. However, to do their work successfully, bookkeepers must be very accurate and knowledgeable about important financial subjects. Usually, the work of the bookkeeper is overseen by either the small business owner or an accountant.
For a person to qualify to call themselves an account, they will
usually need to have a bachelor’s degree in accounting. A financial degree is often considered to be an adequate substitute as well.
Unlike bookkeepers, accountants can also obtain additional professional certifications. Accountants who have sufficient education and experience can become a Certified Public Accountant (CPA). This is one of the more common accounting designations. For an accountant to become a CPA, the person must pass the Uniform Certified Public Accountant test and have the required amount of experience working as a professional accountant.