Bookkeeping vs. Accounting: What is the Difference?
Poor accounting is one of the top reasons many businesses fail. You should enlist the services of qualified bookkeepers and accountants. This will help ensure your business doesn't become a statistic. But what exactly is bookkeeping vs accounting?
Here's a primer on the differences between bookkeepers and accountants.
What is Bookkeeping?
A bookkeeper records the financial transactions of a business. Even if your business is small, it will accumulate receipts, losses, and profits each day. All of these accumulations must be recorded chronologically.
A lot of a bookkeeper's work can be automated with accounting software. In such cases, bookkeepers often also classify and summarize financial data. Bookkeepers with these responsibilities are often called full-charge bookkeepers.
What is Accounting?
Accountants analyze financial records. They follow accounting principles, requirements, and standards to interpret financial data.
Accountants also generate financial reports. These reports help check and guide the financial performance of the business.
In larger businesses, accountants may also oversee the work done by bookkeepers.
Bookkeeping vs Accounting
In many organizations, bookkeepers and accountants act in tandem. They handle the entire accounting process between them. In some smaller businesses, bookkeepers may handle more of the accounting process.
Both are essential elements in the running of a business. It just depends on how the bookkeeping and accounting tasks are handled and by whom.
Choosing the Right Financial Professional for Your Business
Your company's success relies on the financial accuracy of your daily transactions. You also need to be able to analyze that data to make informed business decisions. If you're not able to do that with a do-it-yourself approach then it's time to hire a professional.
An accountant relies on bookkeeping records. So hiring both an accountant and a bookkeeper is an excellent way to cover all your bases. Many small businesses hire a third party accountant.
Bookkeeping tasks may be handled in a variety of ways. Software can often fill the role of a bookkeeper if the business is small enough. Those records are then passed to an accountant on a regular basis for analysis and reporting.
Bigger businesses often use a professional bookkeeper. Others might use an in-house accounting team.
Which route you take will depend on the size and profitability of your business.
A Note on Certifications
It's important you vet any accountants or bookkeepers you're going to work with.
Accountants and bookkeepers can get certification in their respective roles. In the U.S. there are two major organizations that offer this certification:
- The American Institute of Certified Public Accountants (AICPA)
- The American Institute of Professional Bookkeepers (AIPB)
People can use the terms "accountant" and "bookkeeper" without any official certification. You should check the qualifications of any financial professional you hire.
Bookkeepers and Accountants Both Serve Essential Functions
Bookkeeping vs accounting comes down to subtle differences in function. A bookkeeper is primarily involved in the recording of financial data. An accountant's job is to then interpret the data collected. Both serve essential functions within every business.
Not sure if you should hire an accountant? Here are 3 benefits to hiring a qualified accounting professional.