Most of our clients refer to our services as bookkeeping. Technically, accounting is what we do and bookkeeping provides the foundation of our processes. Knowing the difference between bookkeeping vs accounting will help your financial prowess in business.
In this article:
- Differences between bookkeeping and accounting
- Typical bookkeeping duties
- Typical accounting duties
- Differences between bookkeeper vs accountant
What Is The Difference Between Bookkeeping vs Accounting
Bookkeeping is the process of recording transactions for a business. It is organizing all transactional data into an accounting system, per standard accounting principles. All bookkeeping is overseen by someone higher up in the accounting department.
Bookkeeping vs Accounting Definition
Bookkeeping: the activity of keeping financial records for a business.
Accounting: is the measurement, processing, and communication of financial and non-financial information for businesses. Measuring the results of an organization’s economic activities and conveying the information to investors, management, lenders, and governing agencies.
Accounting is often called “the language of business.” It is the process of translating past business activity into a clear financial picture. This is done by following an accrual basis accounting method, so revenue/expenses are aligned in the proper periods, and financial modeling of accounts. Resulting in a better review of business performance and confidence for investments.
What Is Bookkeeping?
The function of bookkeeping is to input all transactional data into the general ledger. The general ledger is the single source of truth, where all sales and expense receipts are posted. This is done in a hard copy book—hence the name—or more commonly with cloud-based accounting software.
Bookkeeping deals with the day-to-day activity of the business. The function utilizes consistent and well-defined procedures for recording. With an emphasis on detailed notes and accurate documentation, to avoid errors.
Typical bookkeeping duties include:
- Accounts Receivable (AR): Recording all incoming money
- Accounts Payable (AP): Recording all outgoing money
- Recording receipts, bills, statements in the general ledger manually or digitally
- Prepare account reports for review: AR/AP ledger reports, expense reports, sales reports, etc
- Prepare financial statements: balance sheet, cash flow statement, and income statement
- Payroll: Processing checks for approval
What Is Accounting?
Accounting is when you make decisive actions based on bookkeeping data. It is looking at the historical past, then critically interpreting and forecasting business outcomes. These insights come in the form of financial models that pinpoint profitability and fluctuations in cash flow.
Accounting will utilize these financial models:
3 Statement Model
Expands on the 3 financial statements: Balance Sheet, Income Statement, and Cash Flow Statement. This model will connect the accounts of the 3 financial statements in Excel. By inputting a set of assumptions about future business activity the models will recalibrate to show anticipated results.
This model focuses on the income statement and determines a target number for revenue and expenses. The models can be used for monthly, quarterly, and annual direction.
Forecasting models can be used to predict a wide range of company endeavors. We like to use them to predict cash flow and avoid cash crunch periods. However, they are generally suitable to predict sales and marketing.
Accounting is also responsible for improving accuracy in record-keeping and verifying ledgers for compliance. GAAP is a set of specific accounting rules created for publicly traded companies. They are not a requirement for all business structures, but when required they must be adhered to. Owners lean on accounting knowledge for affirmation of new growth avenues that are up to code.
Typical accounting duties include:
- Account oversight: Verifying all accounts for accuracy
- Month-end closing procedure: preparing accrual adjustment journal entries
- Financial statement review
- Tax strategy and preparation: income tax returns, estimated quarterly filings, payroll taxes, and sales tax.
- Analysis of operational costs
- Producing financial models to display the impact of company campaigns
Bookkeeper vs Accountant
There is a lot of crossover work with bookkeepers and accountants, especially in smaller companies. But when the roles are distinguished from one another, they complement each other nicely. On an in house accounting team a typical bookkeeper will handle the administrative tasks of recording and organizing transactions. An accountant will review financials, analyze data, and is a consultant for business initiatives and tax strategy.
What Kind Of Education Does A Bookkeeper Need?
Bookkeepers don’t need to have a specific degree. Opting for bookkeeping, accounts receivable/payable, or administrative certifications certainly helps. Though it is important they be detail-oriented, organized, accurate, and cognizant of key accounting principles. Companies favor people that have experience handling large volumes of data or transactional work to hire as bookkeepers.
What Kind Of Education Does An Accountant Need?
To qualify for the title of accountant you need to have a bachelor’s degree in accountancy. Finance degrees are often considered a suitable substitute. As well as the combination of a business degree and experience in the field.
Accountants have the opportunity to move up in ranks with a Certified Public Accountant (CPA) title. This title is extremely difficult to attain and highly coveted by businesses. A CPA is an accountant that can act on behalf of a business to file taxes, approve accounting tasks, and formulate high-level projections and models.
Lasting Impression: Bookkeeping Is The Bread, Accounting Is The Butter
Accounting doesn’t function without bookkeeping, and a business cannot function without accounting. Clear financial reporting only happens with a solid foundation of transactional recording. Whichever role you choose for your business whether it is bookkeeper vs accountant, both will save you time and money so you can focus on your company.