The Difference between Bookkeeping and Accounting
Bookkeeping and accounting are often used interchangeably when describing a process of recording financial transactions for a business, but they are not the same functions. Generally speaking, bookkeeping is a part of the accounting process that focuses on recording financials transactions and is heavily rooted in data entry and reconciliation of bank and credit card transactions and statements. Some examples include:
- Attaching receipts
- Processing expense reports
- Ensuring all bank and credit card transactions are posted
- Invoicing customers
- Processing payroll
- Prepare the books for the accountant
Accounting focuses on financial reporting, analyzing and reviewing the financial statements, and ensuring that applicable laws and regulations related to financial reporting are followed.This can include tasks such as budget creation and variance analysis, job costing, calculation of indirect costs and applicable rates, and adjustments to ensure the proper basis of accounting is followed. Accountants also support management in the implementation and monitoring of internal controls. Accountants can provide and analyze financial ratios needed for lending or financial viability studies.
Accounting is needed to answer questions that managers or other stakeholders may have. Some of those questions can include:
- “Can I afford to hire someone else?”
- “Is the business profitable?”
- “Where can I cut costs or increase revenue?”
- “Did I make money on a specific project, contract, or product?”
- “What is my estimated tax payment?
There are different types of accountants which specialize in different areas. Auditors provide opinions on the accuracy and reasonableness of financial statements. Forensic accountants research financial transactions to uncover fraud. Managerial accountants work to collect and compile data used to make management decisions. Tax accountants specialize in IRS law and completion of tax returns. Cost accountants deal in allocating costs expenses to specific products, jobs, contracts, etc. to review performance and profitability. None of these tasks are done by bookkeepers.
With a shortage of accountants worldwide, and accounting salaries increasing exponentially, it’s easy to see the appeal of hiring bookkeepers rather than accountants. This works when supplemented by other knowledgeable mentors, executives, or fractional CFO’s. It’s important to understand the limitations or differences in the roles and responsibilities.
