Bookkeeping vs. Accounting

If asked to tell the difference between the two terms what would you say?
They are somewhat similar, share common goals, exits a synergetic relationship between the two, or something like that. Interestingly, all of these are true. At times, people even use these terms interchangeably. But there happens to exist quite some differences between the two. While both bookkeepers and accountants have common goals, they support different phases of the business financial cycle.

In this article, we’ll discuss

•    Difference between the two processes.
•    Difference in responsibilities of an Accountant and Bookkeeper
•    Bookkeeping vs. Accounting summary

Bookkeeping vs. Accounting

Bookkeeping is basically a transactional role that revolves around handling day-to-day tasks of recording & categorizing financial transactions, managing records of purchases, receipts, sales, and payments. While on the other hand, Accounting is more subjective and broader in scope. Generally, it consists of preparing financial statements, managing tax-related matters, and providing business owners with useful financial insights based on information taken from their bookkeeping data.

"Bookkeeping is designed to generate data about the activities of an organization," said D'Arcy Becker, chair and professor of accounting at the University of Wisconsin Whitewater Department of Accounting. "Accounting is designed to turn data into information." (Cited in Fuscaldo, 2020)
 

What Does A Bookkeeper Do?

In any business, the potential to grow and expand relies mainly on keeping an up-to-date and organized record of business financials. In fact, the more systematic your approach towards bookkeeping is, the easier it will become for you to measure your company’s growth.
Because a bookkeeper’s responsibilities mainly consist of recording and categorizing financial transactions, they actually lay the foundation for a better accounting cycle. 

The list of tasks performed by a bookkeeper is a lengthy one and mainly consists of
•    Receiving, entering and paying supplier invoices
•    Recording clients’ payments and issuing receipts
•    Accounts Receivable & Accounts Payable processing
•    Payroll Management
•    Account (Bank, PayPal, etc) & Credit Card Reconciliations 
•    Reports and monthly financial statements (balance sheet, income, and cash flow statements) generation.

Daily bookkeeping record transactions in a consistent, easy-to-read way, which help the accountants to do their job effectively. Generally, the work of a bookkeeper is supervised by an accountant or by the business owner itself. Though, a bookkeeper is not an accountant, nor should they be considered an accountant.

What Does An Accountant Do?

Accountants are generally considered as front-line people with regard to data and numbers. An accountant analyzes the financial data maintained by the company’s bookkeeper and provides useful insights and financial advice to the owner of the company on the basis of that information. 
As per the size of the business, an accountant may perform similar duties as a bookkeeper. However, accountants are more experienced and have a higher level of expertise than bookkeepers. Yet, they are different from Certified Public Accountants (CPAs) because they haven’t completed the necessary educational and testing requirements required for that designation.

Some typical tasks performed by accountants include:
•    Verification & analysis of data
•    Handle month & year-end closing
•    Prepare Financial statements of the company & perform audits
•    Provide information regarding financial forecasts, business trends, and opportunities for growth
•    Aiding business owner in understanding the impact of financial decisions
•    Prepare to adjust entries

"Accountants look at the big picture," wrote John A. Tracy in his book Accounting for Dummies. Tracy explains, "[They] step and back and say, 'We handle a lot of rebates, we handle a lot of coupons. How should we record these transactions? Do I record just the net amount of the sale, or do I record the gross sale amount, too?' Once the accountant decides how to handle these transactions, the bookkeeper carries them out." (Cited in Fuscaldo, 2020)

The accounting process gives a clear picture of where your business stands financially and what does that means, what does the situation demands, and what to expect in the future.

Bookkeeping vs. Accounting summary

Bottom Line/Conclusion:

Properly recorded and organized financial data produced by the bookkeeper, together with robust financial strategy and accurate tax filing by the accountant, can contribute towards the long-term success of any business.

Some business owners learn to manage their finances by themselves, while others take the help of a professional so that they can focus on the other important parts of their business.  Whichever option you go for - investing time or money into your business financials, it should help your business to grow.

References:
Fuscaldo, D. (2020, December 29). What's the Difference Between Accountants and Bookkeepers? Business News Daily. https://www.businessnewsdaily.com/15357-15-accountant-bookkeeper-differences.html