Bookkeeping vs. Accounting: What’s the Difference?

 

 

 

 

 

 

Oftentimes, people confuse bookkeeping with accounting. Whilst the two disciplines are essential financial roles needed in any business; they are not the same. Yes, they both entail financial data management and record keeping, but the purpose they serve are distinct, requiring different skill sets from the practitioners. 

Understanding the difference between these two functions can help companies and business owners with effective fiscal management, tax regulation compliance and making informed decisions. 

In this article therefore, we will look at the major differences between accounting and bookkeeping. This will help us understand the roles and responsibilities of an accountant and that of a bookkeeper. And finally, we will learn how both roles can work together to keep a business economically healthy. 

What is Bookkeeping? 

This is the process of organizing and keeping record of a business’ financial transactions. It is the basis or bedrock of the accounting process. It ensures that all the fiscal data of a business/company is documented accurately and maintained properly. Bookkeeping entails keeping track of daily transactions and making sure that they are well-catalogued and recorded on the financial system of a company. 

Purpose of Bookkeeping 

The primary purpose of this process is keeping accurate records of a company’s financial transactions and making sure that they are up-to-date. The activities involved in this process are: -

1. Tracking income and expenditure 
2. Keeping records of sales and purchases 
3. Bank statement reconciliation 

Accurate bookkeeping is very important in any business because it aids the understanding of the economic health of the business and also helps in the preparation of fiscal reports. 

Key Responsibilities of a Bookkeeper  

The following are the major responsibilities of a bookkeeper: -

1. Keeping Records of Transactions – This includes tracking sales, payments and other expenditures and also inputting financial activities into accounting ledgers or software.  
2. Maintaining the General Ledger – They categorize transactions under specific accounts such as assets, liabilities, income and expenses in the master document in which all fiscal activities are recorded. 
3. Reconciliation of Bank Statements – This entails making sure that every transaction is duly accounted for and that the company’s monetary records tallies with bank statements. 
4. Handling Accounts Payable and Receivable – This involves managing out-going payments and incoming invoices and also following up on unpaid invoices. 
5. Managing Payroll – This involves calculating workers’ pay and benefits and also making sure that pay roll tax deductions and payments are made as at when due. 

What is Accounting? 

This is the process of recording, analyzing, processing, interpreting and summarizing the financial data of a business entity. This helps to provide insight into the economic or monetary health of the company. While the primary focus of bookkeeping is to record transactions, the focus of accounting is to use available financial data for strategic decision making and to ensure financial accuracy. 

Purpose of Accounting 

The major purpose of accounting or accountancy as some people call it, is to assess the finances of a business provide insight for informed decision making. Accountants use fiscal data for creating reports, tax compliance and recommendation for improvement of efficiency and profitability. 

Key Responsibilities of an Accountant 

The major responsibilities of an accountant include the following: -

1. Preparation of Financial Statements – This includes generating balance sheets, income and cash flow statements and providing an overview of a company’s financials. 
2. Tax Preparation and Compliance- This entails ensuring that the company complies with federal, state and local tax laws and also preparing tax returns looking out for ways of getting deductions. 
3. Financial Analysis and Forecasting – This entails analyzing economic trends and providing insights for business growth and success by creating forecasts and budgets.  
4. Audits and Internal Controls – They review the record of a company’s finances to ensure that the records are complete and accurate and also implement internal control for the prevention of fraud.
5. Advisory and Strategic Planning – This includes offering recommendations for enhanced profitability and financial efficiency and also help plan growth strategies. 

Key Differences Between Bookkeeping and Accounting 

The table below highlights the major differences between Bookkeeping and accounting: -

 

 

 

Aspects	Bookkeeping	Accounting
Definition	Keeping record of and organizing financial activities	Analyzing, interpreting and summarizing said data
Purpose	Maintain accurate records	Provide insight and recommendations based on recorded data
Main Tasks	Record keeping, reconciliation of bank statements and managing payroll and invoices	Fiscal reports and analysis, preparation and filing of taxes, preparing budgets and advisory roles
Skills Required	Organizational skills and eye for details	Strategic planning, analytical thinking and financial expertise
Reports Created	Trial balance and transaction records	Income and cash flow statements, balance sheet
Focus	Daily financial transactions	Long-term financial strategy and health
Credentials	No formal certification is required but it can be useful	CPA or similar qualification

 

 

 

Do You Need a Bookkeeper or an Accountant? 

The answer to this question depends on the complexity and size of your business; some companies or business ventures may make do with just a bookkeeper while others require only an accountant. However, some companies may find that they need both. 

Below are some scenarios of when you need either of these professionals or both of them: - 

When to Hire a Bookkeeper 

1. If your business conducts a lot of daily transactions.
2. If there is need for tracking sales, expenses and payroll.
3. If you need help with invoice management and reconciliation of bank statements. 
4. If you need to outsource some tasks in order to have time for other aspects of your enterprise. 

When to Hire an Accountant 

1. If you need financial analysis or recommendations for strategic growth plans.
2. If you need assistance with your taxes (filing and compliance).
3. If you need to get investors or secure funding for expansion. 
4. If you want to develop financial forecasts and budgets

When to Hire Both Professionals 

1. For a rapidly growing business 
2. When there arises the need for financial analysis in addition to management of daily transactions.
3. When you start handling complex business issues such as inventory management or international sales. 

Conclusion 

From the fore-going, we believe that this article has answered the question of the difference between bookkeeping and accounting. Knowing the difference between these two functions is important in helping you pick essential staff especially if you are a small business or just starting out in business. Bear the information shared here in mind as it will help you choose the best fit for your business.