When most people believe in bookkeeping and accounting, they might be hard-pressed to explain the differences between each process. Bookkeepers and accountants have the same final goal in supporting your business.
Bookkeeping is more administrative which is mainly concerned with recording all your financial transactions. Accounting is more subjective, supplying you with business insights supported by bookkeeping information.
ACCOTAX Accountants and bookkeepers will help you to understand the functional differences between accounting and bookkeeping.
The function of bookkeeping
Bookkeeping is that the process of recording daily transactions in a consistent way and maybe a key component to putting together a financially successful business.
Bookkeeping is comprised of:
Recording financial transactions
Posting debits and credits
Producing invoices
Maintaining and balancing accounts
Completing payroll
Maintaining a ledger is one of the most components of bookkeeping. the overall ledger may be a basic document where a bookkeeper records the amounts from sale and expense receipts. this is often mentioned as posting and therefore the more sales that are completed, the more often the ledger is posted. A ledger is often created with specialized software, a computer spreadsheet, or just a lined sheet of paper.
The complexity of a bookkeeping system often depends on the dimensions of the business and therefore the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by your business got to be recorded within the ledger, and certain items need supporting documents. The IRS will tell you on their website that which supporting document is required for your business financial transactions.
The function of accounting
Accounting 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 essentially transactional.
Accounting is comprised of:
Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded within the bookkeeping process)
Preparing company financial statements
Analyzing costs of operations
Completing tax returns
The bookkeeper role vs the accountant role
Bookkeepers and accountants sometimes do equivalent work. But generally, a bookkeeper’s first task is to record transactions and keep you financially organized, while accountants provide consultation, analysis, and are more qualified to advise on tax matters.
Bookkeeper credentials
Typically, bookkeepers aren’t required to possess any formal education. To achieve success in their work, bookkeepers got to be sticklers for accuracy and intimate key financial topics. Usually, the bookkeeper’s work is overseen by either an accountant or the tiny business owner whose books they're doing. So a bookkeeper can’t call themselves an “accountant.”
Accountant credentials
To qualify for the title of an accountant, generally a private must have a bachelor’s degree in accounting. For people who don’t have a selected degree in accounting, finance degrees are often considered an adequate substitute.
Accountants, unlike bookkeepers, also are eligible to accumulate additional professional certifications. To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a knowledgeable accountant.
The bottom line
Balanced finances, accurate tax filing, done by a bookkeeper and accountant will help in the long-term success of your business.
Some business owners learn to manage their finances on their own, while others prefer to hire knowledgeable in order that they will specialize in the parts of their business that they really love. Whichever option you select, investing—whether it's time or money—into your business financials will only help your business grow.
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