Bookkeeping and Accounting: What’s the Difference?

Bookkeeping and accounting are terms often used interchangeably. However, they don’t have the same meaning. It’s essential to continue your business’s success by understanding the difference between the two.

Here we’ll discuss the crucial differences between bookkeeping and accounting and how they can each benefit your business.

Bookkeeping vs. Accounting

Bookkeeping focuses on daily tasks, such as money transactions, dealing with accounts payable and receivable. On the other hand, accounting focuses on the bigger picture by analyzing the current situation to make plans and strategies for the future. Both terms are connected, and one can’t exist without the other.

Bookkeeping vs. Accounting: Crucial Differences

Let’s describe the differences in more detail.

Bookkeepers are in charge of day-to-day transactions and financial records. Besides that, they’re focused on the following aspects of your business:

• Financial statements – a bookkeeper prepares crucial reports for running your business, such as income statements, balance sheets, cash flow statements, and statements of changes in equity. The bookkeeper has information about the current financial state of your business.
• Bank feeds – a bookkeeper manages your bank feeds, checks the transactions, and enters additional ones.
• Accounts payable and accounts receivable – a bookkeeper ensures you’re getting paid for your work. Moreover, the bookkeeper takes care of the invoices from your suppliers and makes sure they’re paid on time.
• Taxes – a bookkeeper can help you prepare the information you need for tax filing.
• Payroll – a bookkeeper often pays your employees, manages their working hours and overtime, and helps them fill out different forms.
• Software recommendations – a bookkeeper can advise you on which software to choose for bookkeeping. By using advanced software, you reduce the possibility of making mistakes and ensure every number is accurate.

Bookkeepers are focused on the present state of your business. They ensure daily operations are running smoothly and no mistakes are made along the way.

In contrast, accountants are focused on data analysis and offering long term suggestions for improvement:

• Using the information provided by bookkeepers, accountants analyze the financial statements.
• They analyze your customers and establish which ones are more profitable than others.
• Based on the gathered data, they determine if you can or should hire new employees and expand your business.
• They observe your cash flow and advise on how to make it better.
• They provide forecasts that help you keep your business on the right track and develop it.

An accountant’s primary role is to examine different financial statements to assist you in making the right decisions overall for your business’s journey. An accountant will often use the information gathered by a bookkeeper to make their projections.

Bookkeepers vs. Accountants: Difference in Credentials

Although they often work together and even perform the same jobs from time to time, bookkeepers and accountants have different credentials.

Bookkeepers don’t need to have a formal education. They can be certified, although some freelance bookkeepers don’t have any certification at all. A successful bookkeeper needs to be precise, accurate, and have experience and knowledge of different financial terms and rules. In most cases, a bookkeeper is supervised by an accountant or a business owner.

In comparison, accountants need to have at least a bachelor’s degree in accounting. Moreover, experienced accountants usually have the title of Certified Public Accountant (CPA), a common type of accounting designation. An individual needs to pass the Uniform Certified Public Accountant exam and have accounting experience to obtain the title.

Different states have their own rules as to who can be called an accountant. For example, you are considered an accountant in Texas only when you pass the Uniform Certified Public Accountant exam. Other states only require you to have a bachelor’s degree in accounting.

Regardless of the title, it’s best if you talk to both your bookkeeper and accountant to establish their duties. That way, they will both know their responsibilities, and you will keep your business organized and running smoothly.

Bookkeepers vs. Accountants: Do I Need Both?

The decision is entirely up to you. Depending on your business, you might decide to hire both or neither. Here are a few factors to keep in mind when deciding whether you should hire a bookkeeper and/or accountant:

• Inventory – if you have a large inventory, hiring a bookkeeper is a good idea. However, hiring an accountant isn’t necessary.
• Employees – if you have more than 30 employees, you should consider hiring a bookkeeper. If the number of employees increases, even more, you should hire an accountant, too.
• Industry – if you own a company with complex financial systems that require in-depth analysis, hiring an accountant is a must.

Although bookkeepers don’t need formal education, it doesn’t mean they’re not excellent at what they do. Years of experience are something to keep in mind when hiring a bookkeeper or an accountant.

If you’re starting a new business, it’s never a mistake to at least consult with a bookkeeper or an accountant. An accountant can help you develop your strategy, and a bookkeeper can advise you on managing daily transactions.

If you’re not sure which one to hire, the best thing you can do is discuss it with someone who runs a business in the same industry. You can find plenty of online groups for small business owners. Ask them for advice and decide based on their recommendations. Also, talk with other business owners in your town. You will most likely receive several recommendations for the best bookkeepers and accountants in the area.

Bookkeeping vs. Accounting: Determine Which Is Best for You

Although similar, there are several differences between bookkeeping and accounting. While a bookkeeper deals with daily tasks and transactions, an accountant focuses on the bigger picture and helps you develop strategies and plans for the future.

Deciding if you need a bookkeeper and/or an accountant isn’t easy. Years of experience and knowledge are what you should keep in mind when hiring. A skilled and experienced bookkeeper will often be better for the job than an accountant with no experience.

If you’re interested in learning more about online bookkeeping services, we recommend visiting Swyft Books. You’ll be connected with professionals who will help you run your business successfully. The service uses a secure and reliable network, so you don’t have to worry about safety.

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