Bookkeeping vs Accounting: The Difference Between Bookkeeping and Accounting

Farwah Jafri | May 16 2021

Bookkeeping and accounting are normally used interchangeably, but they are quite different. While their processes are much different, they both work to support a business throughout various stages of its financial cycle.

For one, bookkeeping covers the transactional and administrative side of business finances than accounting. Bookkeeping involves recording financial transactions daily and making sure that all the entries are entered accurately in the correct ledgers.

The work of an accountant builds upon the activities carried out by the bookkeeper and extracts financial insights from the data to provide actionable insights to the business owner. Any entrepreneur person will need both accounting and bookkeeping services to track the financial performance of their business, regardless of whether they’re running a startup or a full-fledged, international company. Some people choose to do it themselves, while some hire bookkeepers or accountants to their team while others outsource it to professionals to do it for them.

Throughout this article, we’ll be delving deeper to identify the key differences between the role of an accountant and the role of a bookkeeper and analyzing in detail how the two professions stack up against one another in terms of their practicality and contribution to a business.

What is Bookkeeping?

A bookkeeper is responsible for accurately recording and updating all financial transactions of a business. Their primary responsibilities include making sure that every financial transaction is entered into the company database and recheck it regularly to ensure it is free of any errors or mistakes. By following upon these responsibilities rigidly, a bookkeeper is able to:

  • Record and calculate incomes and expenses
  • . Make bank transactions
  • . Create and update daybooks
  • . Process and generate sales invoices
  • . Process payrolls
  • . Create analysis reports and debtor reports
  • . Process financial transactions and prepare statements
  • . Manage accounts receivable and accounts payable

To be effective in their job, bookkeepers are mandated to have professional expertise to understand how to categorize any transaction correctly in the different ledgers. They must have a good head for figures and must be capable of traversing through multifaceted financial data and to make sure there is a concrete balance in the accounts of a business.

See Also: 5 Ways a Bookkeeper Can Save You Money

They need to be consistent with their records and ensure that there aren’t any vulnerabilities through which an error can slip in and ruin their books. Some other responsibilities of bookkeepers include preparing and filing VAT returns, sales tax, chasing clients for payments, filing and handling documents, processing requests for expenses, and more.

What is Accounting?

Accounting comes with a wider set of obligations and consists primarily of financial reporting. An accountant analyzes the data collected by the bookkeeper and extracts financial insights and business advice from it to present to the business owner. They are required to break down complex information into simple terms and present it to business owners so that they’re able to understand the current financial standing of their business more clearly.

As bookkeeping is largely focused on transactions, accounting focuses on generating reports that help bring important financial indicators together.

Proper, detail-oriented accounting helps the business owner grasp the actual state of their business’s cash flow and how it can be improved so that it results in increased profitability. Some everyday accounting responsibilities include:

  • . Generating financial reports
  • . Conducting audits
  • . Verifying and reviewing information
  • . Adjusting entries
  • . Forecasting cash flow
  • . Organizing budgets
  • . Analyzing and projecting financial success

Accountants also prepare financial reporting forms such as tax returns, revenue statements, and balance sheets. They provide estimation for forecasts, industry trends, and prospects for future growth and guide the owners on where to take their business next. Unlike a bookkeeper who is only limited to carrying out his role, an accountant can assume the position of a bookkeeper if there isn’t one available. In their need of strategic financial guidance, a business owner will always turn to an accountant.

See Also: Accounting 101 for Small Business Owners

Accounting vs Bookkeeping: What’s the Difference?

The major differences between these two practices lie mostly in the tasks they accomplish and the skills and expertise that are required to do so. Whereas a bookkeeper is in charge of handling where the money is coming from and where it is going out, an accountant takes care of all the remaining aspects of the finances. They take care of the taxes, provide consultation, assess risks and potential hazards, and generate reports to be passed onto the business owner.

A bookkeeper’s job environment is also much more limited than an accountant’s. If you are a bookkeeper, your services will most likely be sought out by small companies, and you’ll be expected only to have a strong background in math and a high school or college diploma. While a degree is not required, most bookkeepers will pursue a certification or a bookkeeping diploma, whereas some may obtain certifications for QuickBooks and other software. Bookkeepers should also be detail-oriented and demonstrate strong skills in use of computers and technology.

On the other hand, if you are an accountant, you will be required to have at least an undergraduate degree or higher, depending on where you apply for a job. You may be able to apply in places like government agencies, tax companies, and other financial organizations.

Overall, both the role of an accountant and bookkeeper are pivotal for a company’s financial success. Both bookkeepers and accountants are responsible for helping the company expand to new horizons and keep track of its growth.

If you couple correctly arranged financial records put together by a bookkeeper with the financial strategies and tax filing efficiencies of an accountant, you can have guaranteed long-term economic success for your business.

If you feel that managing your in-house bookkeeper or accountant can be a challenge for you, or are mindful of the cost, it can be far more convenient for you to outsource these tasks to an online financial management service. Not only will you be making considerable savings, but you will also be getting services that are explicitly tailored for you based on the requirements of your business.

Finding the Right Bookkeeping and Accounting Service for Your Business

Investing correctly to streamline your business finances is one of the most rewarding things you can do for your business and for your own peace of mind.  Which is why finding the right, reliable, professional bookkeeper and accountant is a very important task that requires significant time and attention. What usually helps is having both of these services availed from one service provider as it creates synergies, eliminates delays in sharing of information, and errors. Monily has a long-standing record of providing customized financial services to our customers. Our accountants and bookkeepers are equipped with all essential expertise and knowledge to deliver the best service and keep you updated with the financial health of your business. By outsourcing your requirements to us, you will be able to benefit from our best-in-class financial management services so you can focus on growing your business.

Author Bio

Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.