What’s The Difference Between An Accountant And A Bookkeeper?
Bookkeeping and accounting are two functions which are extremely important for every business organization. In the simplest of terms, bookkeeping is responsible for the recording of financial transactions, whereas accounting is responsible for interpreting, classifying, analyzing, reporting, and summarizing the economic data.
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 significant differences between bookkeeping and accounting.
When most people think about bookkeeping and accounting, they would be hard-pressed to describe the differences between each process. While bookkeepers and accountants share common goals, they support your business in different stages of the financial cycle.
Bookkeeping is more transactional and administrative, concerned with recording financial transactions. Accounting is more subjective, giving you business insights based on bookkeeping information.
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, analyzing, reporting and summarizing financial data. The most significant difference between accounting and bookkeeping is that accounting involves interpreting and analyzing data, and bookkeeping does not.
Staying on top of your finances is a key part of being a successful small business owner. As such, your financial data must be current and accurate so that you have the tools you need to make sound business decisions and ensure healthy cash flow.
As your business grows to include more customers, vendors and employees, it can get more difficult to keep track of your finances on your own.
When the bookkeeping and accounting tasks for your small business are too much to handle by yourself, it’s time to hire help. But do you need a bookkeeper or an accountant? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are distinct differences.
Bookkeepers Vs. Accountants
There is often a misconception that bookkeeping and accounting are the same things. While they both work to assist you with your finances, there are some important distinctions between the tasks of a bookkeeper and an accountant. From the outset, it is important to understand that both bookkeepers and accountants are integral parts of your business. While their tasks can sometimes overlap, there are definitely certain aspects of your business that you would specifically entrust to an accountant, and others that you would give to your bookkeeper.
In simple and very general terms, a bookkeeper will likely be the person that assists you with the ongoing financial recording and transactions that keep your business running smoothly. Your accountant, on the other hand, will be the person who analyses the data produced by your bookkeeper, reports on it, and is best suited to give you financial advice. Your accountant will also have a strong understanding of your taxation requirements and will be best able to assist in that area.
To understand more comprehensively the benefits that both bookkeepers and accountants can offer to your business, it can be helpful to be aware of the tasks that each could be expected to undertake.
Bookkeepers, as previously stated, are instrumental in the ongoing financial upkeep of your business.
The key difference between bookkeeper and accountant is that bookkeeper is responsible for performing the bookkeeping activities in the company where financial transactions are recorded systematically, whereas, Accountants are responsible for the accounting of the financial transactions that have occurred in the past by the company as well as reporting the financial affairs of the company which shows the clear financial position of the company.
Simply put, bookkeepers are responsible for the recording of financial transactions, whereas accountants are responsible for classifying, analyzing, interpreting, reporting, and summarizing this financial data.
The initial classifications and recording of a company’s transactions like bills paid, daily sales and payroll or another expenditure fall to a bookkeeper. There is, however, no line in the accounting processes where a bookkeeper’s role should end and that of the accountant to begin. Accounting processes may call for an accountant to correlate and indemnify the books or records presented by a bookkeeper.
Bookkeeping is a transactional and administrative role that handles the day-to-day task of recording financial transactions, including purchases, receipts, sales, and payments. Accounting is more subjective, providing business owners with financial insights based on information taken from their bookkeeping data.
“Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor of accounting at the University of Wisconsin Whitewater Department of Accounting. “Accounting is designed to turn data into information.”
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.
The first major difference between bookkeeping and accounting lies in their respective definitions.
Bookkeeping is defined as “the process of accumulating, organizing, storing, and accessing the financial information base of an entity.” It is vital for day to day business operations and is the foundation for preparing financial statements, tax returns, and other important reports. In short, bookkeeping is the process of recording financial transactions.
Accounting, on the other hand, has a broader scope than bookkeeping. Accounting is defined as the “systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information.” In other words, accountants can do more than record transactions; they are also trained to explain what financial data actually means to key stakeholders within the company.
For example, an accountant can generate reports on the company’s current financial condition, which in turn can guide the owner or executive to make informed business decisions as we advance.
An accountant looks at a company’s financial big picture. They analyze and interpret data, compile reports and financial statements, and prepare taxes.
A bookkeeper handles day-to-day financial transactions. A bookkeeper carefully records transactions, sends invoices, handles payroll, and makes sure bills are paid on time.
Because bookkeepers are heavily involved in the day-to-day finances of your business, they can provide more immediate financial advice, as well as provide you with reporting to help you with your decision making.
If you’re starting, they can be an especially valuable resource. They can help you answer financial questions like do you need a business bank account or not.
Depending on the company, accountants can also perform the duties of a bookkeeper. Many small businesses don’t have the resources to have both a bookkeeper and an accountant so the accountant might be tasked with bookkeeping duties, especially if they’re less experienced.
What Are the Duties of a Bookkeeper?
The duties of a bookkeeper vary, depending on the company. Here is a breakdown of the responsibilities typically associated with a bookkeeping role:
- Recommend, implement or manage accounting software for the development of a single or double entry system of accounting.
- Recommend, implement and monitor bookkeeping policies and procedures.
- Develop credit and debit accounts, including the assigning of expense categories.
- Enter expenses and income into the software, including non-digital methods of payment such as cash and checks.
- Handle banking activities, including new deposits.
- Train staff on the use of relevant bookkeeping software (such as how to enter expenses).
- Verify recorded expenses are within the company’s policies and manage approvals.
- Verify the accuracy of the information and that the accounts balance (if a Double Entry system).
- Maintain records, and backup and archive as necessary.
- Assist the accountant in the preparation of financial statements (or depending on the type of statements required, prepare them himself).
- Ensure bookkeeping adheres to accounting best practices and government regulations.
- Assist with audits.
- Flag discrepancies.
A bookkeeper also has to keep the information he processes confidential, as he will be privy to sensitive financial information, including payroll salaries.
Bookkeeping is the process of daily recording transactions in a consistent way and is a key component to building a financially successful business.
Bookkeeping is comprised of:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
- Completing payroll
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. This is referred to as posting, and the more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.
The complexity of a bookkeeping system often depends on the size of the business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The ATO lays out which business transactions require supporting documents on their website.
Bookkeeping, in the traditional sense, has been around as long as there has been commerce – since around 2600 B.C. A bookkeeper’s job is to maintain complete records of all money that has come in and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way and their records enable the accountants to do their jobs.
These are some typical bookkeeping tasks:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Managing payroll
- Maintaining and balancing ledgers, accounts, and subsidiaries
One of the main duties of a bookkeeper is maintaining a general ledger, which is a document that records the amounts from sale and expense receipts. Ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks and Xero, to track their entries, debits and credits.
Each sale and purchase made by your business must be recorded in the ledger, and some items will need documentation. You can find more information on which transactions require supporting documents on the ATO website.
There are not any formal educational requirements to become a bookkeeper, but one must be knowledgeable about financial topics and terms and strive for accuracy. Generally, a bookkeeper’s work is overseen by an accountant or the small business owner. A bookkeeper, though, is not an accountant, nor should they be considered to be an accountant.
The two occupations also differ in their scope. Bookkeeping duties could include the following tasks:
- Pay debts as they come due
- Issue customer invoices
- Collect sales taxes and forward them on to the government
- Record cash receipts
- Make bank deposits
- Perform monthly reconciliation of each bank account
- Conduct periodic reconciliations of all accounts to ensure accuracy and completeness
- Maintain the petty cash fund
- Maintain an orderly accounting filing system
- Maintain the annual budget
- Regularly process payroll on time
- Provide clerical and administrative support as needed
Accountant duties encompass a wider variety of necessary tasks. These could include the following actions:
- Correctly reading and interpreting financial records
- Ensuring that the company is in total compliance with all state and federal regulations
- Providing professional financial advice to company leaders
- Preparing tax returns and analyzing ways to minimize the tax burden
- Preparing financial statements
- Presenting reports to key stakeholders
- Setting up a comprehensive accounting framework to guard against fraud or embezzlement
- Overseeing the work of bookkeepers
While there often is considerable overlap between bookkeeping and accounting duties, for the most part, bookkeepers are concerned with the day-to-day maintenance of financial data. At the same time, accountants are focused on leveraging the company’s financial data to make wise business decisions.
What Are the Duties of an Accountant?
The duties of an accountant can be broken down into four areas:
- Data Management
Overseeing how data is stored, managed and updated. For instance, a bookkeeper might recommend the software for a double-entry system of accounting, but the accountant would approve it.
- Financial Analysis and Consultation
Properly assessing data and advising management.
- Financial Reports
Being able to generate the standard business reports and statements required by businesses and the ATO.
- Regulatory compliance
Being up to date on government regulations and ensuring the company is following industry standards.
Accounting is a high-level process that uses financial information compiled by a bookkeeper or business owner and produces financial models using that information.
The process of accounting is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
- Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
- Preparing company financial statements
- Analyzing costs of operations
- Completing income tax returns
- Aiding the business owner in understanding the impact of financial decisions
The process of accounting provides reports that bring key financial indicators together. The result is a better understanding of actual profitability and awareness of cash flow in the business. Accounting turns the information from the ledger into statements that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, financial forecasting, and tax filing.
An accountant analyzes the financial data recorded by the bookkeeper and provides business owners with important business insights and financial advice based on that information. These are some typical accountancy tasks:
- Verifying and analyzing data
- Generating reports, performing audits, and preparing financial reporting records like tax returns, income statements and balance sheets
- Providing information for forecasts, business trends and opportunities for growth
- Helping the business owner understand the impact of financial decisions
- Adjusting entries
“Accountants look at the big picture,” wrote John A. Tracy in his book Accounting for Dummies. Tracy explains, “[They] step and back and say, ‘We handle a lot of rebates, we handle a lot of coupons. How should we record these transactions? Do I record just the net amount of the sale, or do I record the gross sale amount too?’ Once the accountant decides how to handle these transactions, the bookkeeper carries them out.”
The accounting process produces reports that bring key aspects of your business’s finances together to give you a complete picture of where your finances stand and what they mean, what you can and should do about them, and where you can expect to take your business soon.
Note that there is a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you before the ATO if you’re audited.
Accountants generally must have a degree in accounting or in finance to earn the title. They may then pursue additional certifications, like the CPA. Accountants may also hold the position of bookkeeper.
However, if your accountant does your bookkeeping, you may be paying more than you should for this service, wrote Bryce Warnes in a Bench blog post, as you pay more per hour for an accountant than a bookkeeper.
Do I need a bookkeeper or an accountant?
This is entirely dependent on your business needs. You may need both a bookkeeper and an accountant, or you may need one or the other.
It’s common that business owners only consult with their accountant at the end of the year, and many home service businesses don’t even have full-time accountants.
Here are some signs that you might need professional financial help:
- If you find yourself wanting to talk to your accountant more regularly, it might be time to hire an accountant
- If you’re spending more time organizing your books and falling behind on other aspects of your business, it may be time to hire a bookkeeper.
If your business is new, you may only get a bookkeeper at the end of the year. As your business grows, you’ll have to transition. You can go from having a bookkeeper quarterly to having someone come in monthly until you eventually hire someone full time.
The tricky part of this is determining when to transition from a casual bookkeeper to a regular bookkeeper.
Whatever you decide to do, make sure you have someone who knows what they’re doing.
Investing in the services of financial professionals is worth it, and it can help you save time, money, and a headache when you start preparing for tax season.
How to know when to hire a financial professional
It can be not easy to gauge the appropriate time to hire an accounting professional or bookkeeper or to determine if you need one at all. While many small businesses hire an accountant as a consultant, you have several options about how you handle bookkeeping tasks.
For example, some small business owners do their own bookkeeping on software their accountant recommends or uses, providing it to the accountant on a weekly, monthly, or quarterly basis for action. Other small businesses employ a bookkeeper or have a small accounting department with data entry clerks reporting to the bookkeeper.
When looking for a certified bookkeeper, you must first decide if you want to hire an independent consultant, a firm, or if your business is large enough, a full-time employee to keep your books. You can ask for referrals from friends or colleagues, your local chamber of commerce, or search online social networks like LinkedIn to find bookkeepers.
Keep in mind that it may take more background research to find a suitable bookkeeper because they do not have professional certification requirements like accountants do. Hence, a strong referral or years of experience are important factors to consider. You can check to see if candidates are part of professional governing bodies.
Suppose you are looking to hire an accountant. In that case, it’s probably because your taxes have become too complex to manage on your own, with multiple income streams, foreign investments, several deductions or other considerations. An accountant can save you hours and help you stay on top of important matters like payroll, deductions and tax filings.
To find a good accountant, ask for referrals from friends or industry colleagues. You can also look at the ATO website to find CPAs that have skills in certain areas, such as employee benefits or personal finance.
Whether you hire an accountant, a bookkeeper, or both, the individuals must be qualified by asking for client references, checking for certifications or running screening tests.