The financial situation and capacity of your business plays a huge role in dictating your success in your industry. And for you to be able to monitor this aspect, you have to have an accountant and a bookkeeper. Though they are both involved in the finances of your business, they have different responsibilities to fulfill.
Bookkeeping and accounting are two very different professions and tasks that are often confused or conflated. While the terms may seem interchangeable at glance, they, in fact, carry out different functions.
To differentiate, bookkeeping focuses on collection and organization of raw data. It encompasses the recording and categorization of financial transactions, posting of debits and credits, invoice preparation and sending, maintaining balance subsidiaries, ledgers and historical accounts, completing payroll, and record keeping.
The key difference between them lies in the nature of their work. Bookkeepers are more on the administrative side — they keep an accurate record of day-to-day financial transactions. Accountants, on the other hand, are more of a decision-maker. Based on the records made by bookkeepers, they make financial statements, assess your financial capacity, and generate forecasts that will help you drive your business to growth.
Accounting focuses on the analysis of said data through financial statements and other tools. Accountants prepare, adjust, and audit entries, prepare financial statements, complete income tax returns, create a financial analysis and strategy for your business, create tax strategy and planning, and provide financial forecasting services.
These two professions are entirely different, though they do support common goals for your business. However, keep in mind that your bookkeeper and accountant offer help in different stages of your company’s financial cycle.
Let’s take a more detailed look at their differences.
• Roles and responsibilities
The major activities of bookkeepers include:
- Recording payments from clients and consumers
- Making and sending out invoices to vendors
- Tracking of late payments, notifying concerned parties
- Processing and paying invoices from suppliers
- Processing payroll transactions
- Processing petty-cash transactions
On the other hand, accountants are responsible for the following:
- Creating and maintaining financial statements
- Creating budget and loan plans
- Comparing budget plans vs. actual expenses
- Recording accrued and deferred revenues
- Preparing tax documents and identifying all possible tax deductibles
- Creating financial forecasts
• Skills required
Because the role of bookkeepers is administrative and mostly mechanical, they don’t require special skills. However, they need to have a keen attention to detail.
Accountants are required to have accounting and analytical skills. They should have a degree in accounting and a license (meaning, they should pass the Certified Public Accountant Licensure examination).
• Tools used
To render their services, bookkeepers use journals and ledgers. Accountants utilize tools such as profit & loss, balance sheet, and cash flow statements. Different software are also available for both to help them boost their efficiency.
Business owners or those in the managerial positions at least work with accountants to create sound business decisions. Nonetheless, bookkeepers don’t necessarily have a role to play in the organization’s decision-making processes.
• Complexity of work
Given all the differences mentioned above, it’s safe to say that accountants have a relatively more complex nature of work compared to bookkeepers.
A Synergized Effort
Like any part of a team, both bookkeepers and accountants need to fulfill their roles to help the entire organization reach its goals — may it be short-term or long-term. While they have their own roles to play, they must work hand in hand to deliver an accurate picture of your business’ financial situation. For instance, for accountants to be able to produce accurate financial statements, the bookkeepers must ensure that every detail in the transaction they record is accurate.
Though some businesses handle their finances on their own, others opt to hire bookkeeping and accounting professionals. One of the benefits of doing the latter is having the time and energy to focus on the other aspects of their respective businesses. In the long run, this move will also be more cost-effective — you can avoid making costly, headache-inducing mistakes, plus you can tap their knowledge in the latest bookkeeping and accounting technologies.
In summary, bookkeepers focus mainly on the recording and organizing financial transactions, while accountants deal with data analysis, forecasts and predictions, as well as audit and tax services. While bookkeeping is a part of the accounting process, it does not equate to the entirety of the accounting profession. You may do your own bookkeeping, but the preparation of financial statements and other legal forms require help from a board-certified professional.
Need assistance with your business? Want to learn more about how bookkeepers and accountants can aid solve your business concerns? We can help! Just contact us for a free 30-minute consultation today.