Most of the students are not well aware of the core difference between accounting vs bookkeeping. At first glance, bookkeeping and accounting look similar, and it is hard-pressed to distinguish between the two. However, both are crucial aspects for managing business finance and help sustain your business at various stages.
In simple terms, bookkeeping is administrative and transactional, concerned with financial transaction recordings. On the other hand, the account provides deep insight into business financial health based on bookkeeping information. However, the tasks of accountants and bookkeepers sometimes overlap but are not similar.
Let’s read in detail about accounting vs bookkeeping to have a deeper insight into both. ]
Accounting vs Bookkeeping
Bookkeeping and Its Functions
Bookkeeping is about recording, measuring, retrieving, and storing data of financial transactions made for business organizations. In general, it’s a process of collecting daily transaction recordings conveniently. Therefore, bookkeeping is a key component in fetching out financial information required to run a successful business.
Bookkeeping consist of the following things:
- Invoices and payroll completion
- Preparation of balance sheet, income statement, and cash flow statement.
- Maintaining general ledger, subsidiaries, and historical accounts
- Posting of credit and debit card
- Bills and receipts
Out of all these things, maintenance of the general ledger is the crucial element of bookkeeping. General ledger is a fundamental document in which bookkeepers record expenses and sales amounts. The term is known as posting. However, Bookkeepers can also use comprehensive software, a spreadsheet, and a plain paper sheet to create a ledger.
Every financial aspect of your business has to be recorded into the ledger. Therefore, bookkeeping complexity is often dependent on the complexity of business and transactions completed weekly, daily, and monthly.
Accounting and Its Functions
Accounting refers to the financial knowledge to interpret and summarize the financial statement through product reports, statements, and income information. This is often known as “business language.” Accounting is all about analysis of information for financial forecasting. It helps to make an informed decision about the business.
In general, accounting refers to the financial management process that uses the financial data collected by the business owner and bookkeeper to generate the financial model. The accounting comprises of following things:
- Recording business expenses and adjusting entries that aren’t recorded yet in the bookkeeper.
- Reviewing the financial statement of the company
- Analyzing the business operation costs
- Filling the income tax returns
- Aiding entrepreneurs in understanding the financial decision impact.
Analyzing financial reports is the most crucial aspect of the accounting process. This helps to make a financial decision for your business easily. Moreover, you have a better understanding of profitability and cash flow awareness. Accounting helps turn the raw information from the ledger into a manageable form for the company’s progress.
However, business owners also need accountants for strategic tax planning, business forecasting, analyzing financial positions, and filing taxes.
What Do A Bookkeeper and Accountant Do?
Business companies hire professional bookkeepers and accountants to maintain the company’s finances. Both professionals help gather financial data and interpret data to know financial statements. However, an accountant plays a significant role in strategic financial planning to improve business cash flow.
On the other hand, Bookkeepers help handle day-to-day financial tasks such as recording receipts, data entry, invoice formation, paying suppliers, reconciling bank statements, etc. Some bookkeepers also generate financial reports and statements, including balance sheets, trial balances, etc., laying the groundwork for financial analysis.
The bookkeepers also produce valuable financial information which companies can access later for future business. But when you want to update data and need advice for a business decision based on financial data, an accountant plays a crucial role in figuring out the entire data.
Role of Accountant and Bookkeeper
Sometimes an accountant and bookkeeper work similarly, but both of them have different skills. In simple terms, the accountant does a deep analysis of the business finance record and offers valuable consultation about business planning. They also offer the best advice on tax return matters.
On the other hand, a bookkeeper generally records business transactions and other financial expenses in the ledger. The bookkeeper helps in managing data in one place.
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Roles Summary of Accounting vs Bookkeeping Professionals
|Prepare all financial adjusting entries||Categorize and record financial transaction data|
|Prepare all the financial statements, including expenses and earnings||Posting credits and debits of the company|
|Compete for filing of income tax returns||Maintaining general ledger, balancing subsidiaries, historical accounts, and many more.|
|Tax planning and strategies for tax payments||Completing invoices and payments|
|Financial forecasting||Record keeping|
Accounting Vs Bookkeeping- Comparison Summary
|General Meaning||Bookkeeping is the process of recording all the financial transactions consistently made by the company.||Accounting refers to the reporting and recording of the financial data of business companies for a certain period. The term accounting is also famous by as business language.|
|Decision Making||Decisions cannot be made on the bookkeeping recording basis||Decisions on the business finance can be made by an accountant based on accounting records|
|Tools Used||Ledger and Journal||Profit & loss, balance sheet, and cash flow statement|
|Financial Statement Preparation||Financial statement preparation is not done in Bookkeeping||Finance statement preparation is a crucial part of the accounting process.|
|Financial Position Determination||Bookkeeping doesn’t determine the financial position of the business companies,||Accounting provides the big picture about a business’s financial position and helps in deep business analysis for future progress.|
|Methods||Single and Double Enter System of Bookkeeping||Cost accounting, financial accounting, management accounting, social responsibility accounting, human resources accounting, etc.|
The Bottom Line
Now you have seen the difference between accounting vs bookkeeping. A business finance record is included in Bookkeeping, and a bookkeeper helps manage your business record. On the other hand, accounting generates a clear picture of business finance and helps prepare business strategies for future profit.
Though both these terms are set apart when bookkeeping coupled with finance planning and accurate tax filing helps achieve business goals faster. However, for financial analysis and recording, some business vendors hire professionals to manage their business accounts, while others do it independently.
But hiring a professional can give you better management of finance; provide you with strategies to improve your business. So, whatever your choice, an accountant or bookkeeper, be sure they bring some value to your business and help it grow.