The terms “accounting” and “bookkeeping” are often used interchangeably. But are bookkeeping and accounting the same? What is the difference between the two?
While similar in nature, bookkeeping and accounting are different in many ways. If you’re a business owner, it’s important to understand the difference between the two. Bookkeepers and accountants may have different services that your business needs.
What Is Bookkeeping?
What does bookkeeping entail, exactly? Do bookkeepers need to obtain certain credentials? Let’s take a closer look at this role and what services they offer for businesses.
The Function of Bookkeeping
The function of bookkeeping is to keep a record of daily transactions. Bookkeepers perform a variety of tasks, including:
- Recording financial transactions
- Sending out invoices to clients or customers
- Posting debits and credits
- Payroll
- Preparing financial statements, such as income statements, balance sheets and cash flow statements
- Maintaining and balancing ledgers and accounts
One of the main jobs of a bookkeeper is to maintain a business’s general ledger, which is a document that lists the amounts from sales and expense receipts.
Traditionally, bookkeepers would maintain a physical ledger. Today, most bookkeepers use spreadsheets or specialized software for easy and organized management.
All purchases and sales must be recorded in a business’s ledger, and certain items also require supporting documents.
Bookkeeper Credentials
Generally, bookkeeping roles do not require any special credentials or formal education. However, they do need certain skills to excel in this role, such as being:
- Well-organized
- Detail-oriented
- Knowledgeable about financial topics
In many cases, a bookkeeper’s work is overseen by either the business owner or an accountant.
Process Of Bookkeeping
The bookkeeping process consists of:
- Analyzing financial transactions
- Assigning transactions to specific accounts
- Recording and tracking credit and debit transactions in the appropriate accounts
- Recording entries to ledger accounts
- Adjusting entries as necessary at the end of every accounting period
This process of based on two important principles:
- For every debit, there must be an equal credit
- All accounts must balance
What Is Accounting?
Accounting is similar to bookkeeping. The two professions have overlapping tasks, but accountants can perform some tasks that bookkeepers cannot perform.
The Function of Accounting
The function of accounting is to use financial data to create financial models. Accountants may also provide advice to owners to help them make smarter business decisions.
Accounting tasks include:
- Reviewing financial statements prepared by bookkeepers
- Preparing and adjusting entries
- Preparing and completing tax returns
- Analyzing expenses
- Helping owners understand the financial impacts of their decisions
A key part of the accountant’s job is to analyze financials to help business owners make informed decisions and plans. Accountants help business owners understand their cash flow and profitability.
Business owners often use accounting services for:
- Tax planning
- Forecasting
- Tax filing
Accountant Credentials
One of the biggest differences between bookkeepers and accountants is that accounting roles do require credentials.
Accountants must have:
- A bachelor’s degree in accounting or a related finance degree
These professionals can also obtain additional certifications, such as the Certified Public Accountant (CPA) credential. In addition, CPAs must have sufficient experience in the field, meet educational requirements and pass exams.
Process Of Accounting
Accountants can perform a variety of tasks, so processes can vary. Generally, they are responsible for:
- Helping business owners reduce taxable income through tax planning
- Preparing and filing taxes
- Creating forecasts to help business owners understand the financial health of their operations
Many accountants also provide business owners with advice and help them make sense of the data in their reports.
Why Is the Difference Between Bookkeeping and Accounting Confused?
With so many differences between bookkeeping versus accounting, you may be wondering why these two roles are often confused.
Although accountants and bookkeepers perform different tasks, their jobs are similar in nature:
- To help business owners run successful businesses
Accountants may also perform some of the tasks that a bookkeeper would traditionally perform.
It’s easy to see why these roles are confused, especially when the terms are used interchangeably by business owners. The bookkeeping process is also referred to as the accounting process, which can make it even more confusing for business owners.
The Main Differences Between Bookkeeping and Accounting
Does your business need bookkeeping or accounting? Understanding the main differences between these two roles can help you determine which services you need.
Bookkeepers:
- Record and categorize transactions
- Maintain and balance general ledgers and accounts
- Create and send invoices
- Record debits and credits
- Handle payroll
- Keep records
Accountants:
- Prepare and complete tax returns
- Prepare financial statements and adjusted entries
- Perform tax planning and strategies
- Prepare financial forecasts
- Perform financial analysis and strategy
The fundamental difference between bookkeeping and accounting is that bookkeeping is more administrative in nature and focuses primarily on recording and maintaining financial records for businesses. Accounting is a high-level process that involves tax preparation, tax planning and helping business owners make informed decisions about their businesses.
Accountants must have formal education and meet other requirements in order to operate. Bookkeepers have no educational requirements, although they still need knowledge of financial topics.
The processes of bookkeeping and accounting also differ greatly. Accountants often oversee a bookkeeper’s work to ensure that it’s accurate. They also prepare forecasts and help business owners understand their cash flow.
When accountants obtain their CPA certification, they can defend tax returns if the IRS or state has questions. This is a task that a regular accountant or bookkeeper cannot handle.
Cash Flow Frog - We Make Bookkeeping Simple to Understand for You
Bookkeeping doesn’t have to be complicated or confusing. Cash Flow Frog makes it easy to create cash flow forecasts and understand the financial health of your business.
In seconds, Cash Flow Frog can help you create:
- Cash flow forecasts
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No matter the size of your business or your industry, Cash Flow Frog can make bookkeeping easy to understand so that you can run your business with confidence.
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