There is a common misconception that bookkeeping and accounting are one and the same. While they might share similar goals and support the business in different stages of the financial cycle, they are quite different. Sometimes their tasks might overlap, but there are distinct differences between the two. Below is a breakdown of the key differences between accounting and bookkeeping.
Bookkeeping is the process of recording transactions on a daily basis in an honest and consistent manner. This is a key component to the process of building a strong business. Functions performed by bookkeepers include:
- Recording of daily financial transactions
- Processing invoices, payments, general ledgers and receipts
- Preparation of financial statements
- Reconciling multiple accounts
While the role of an accountant may overlap with the functions of the bookkeeper listed above, their role is analytical and advisory in nature. An accountant can perform the regular accounting tasks and can analyze the past performance of the business, offer financial projections and advise on any future elements that can affect the business. Their services also include:
- Account audits
- Taxation planning and advice
- Financial management advice
- Corporate financial reporting and compliance
- Creating budgets
Bookkeepers do not require a set of special skills, since many of their tasks are mechanical in nature. However, an accountant requires specialized analytical skills due to the complex nature of their work. Accountants also need to have specialized training to work effectively. In most cases, an accountant needs to be registered as a Certified Public Accountant (CPA).
Management cannot make many decisions simply based on the bookkeeping records. However, management can use the accountant records to make decisions, since they are more analytical. For example, future projections of the financial records based on the current year reporting period can help management make decisions to improve profitability in the future.
Tools of the Job
A bookkeeper’s main tools are journals and ledgers, since their main role is to complete and systematically keep full documentation of every financial transaction an entity makes. Accountants, on the other hand, use the information relayed from the bookkeeper to come up with the financial statements, profit and loss accounts and the statement of cash flow. Bookkeeping records do not disclose the correct financial position of the entity, but accounting helps in showing the true and fair view of the entity’s financial status and its profitability.
While bookkeeping and accounting are two terms that are used interchangeably to some level, it is important to know the difference. Bookkeeping is an important part of the accounting information system as it lays the groundwork of accounting and it is the starting point of the entire accounting process. For help with your company’s accounting needs, contact the experts at Bodine Perry at (855) 851-8318 or visit www.bodineperry.com.