The key to a successful business is staying on top of your finances. Thankfully, the bookkeeping and accounting roles can be instrumental for the financial well-being of a business.
Did you know the responsibilities of bookkeeping are vital to accounting? A common misunderstanding is that bookkeeping and accounting are the same job. Although both are similar and are sometimes used interchangeably, there are some noticeable differences. Keep on reading to find out what each role means and the top 3 differences between bookkeeping and accounting.
What is bookkeeping?
Understanding the financial health of organisations has been around for as long as commerce, since about 2600 BC. So, what is bookkeeping? A transactional and administrative role important to the world of commerce, bookkeeping is the continuous recording of all financial transactions carried out by a business or organisation.
What is accounting?
If bookkeeping is all about recording the daily details of a business’s financial transaction, what is the definition of accounting? Accounting is the process of summarising and interpreting the financial data of a business.
Bookkeeping vs Accounting: objectives and tasks
The first difference between bookkeeping and accounting focuses on the importance of each job and how vital it is to an organisation’s financial well-being.
Bookkeeping focuses on the day-to-day financial transactions, paying close attention to all money coming in and going out of a business. Some of the typical bookkeeping tasks include the following:
Record financial transactions
Create and send invoices
Post debits and credits
Make bank deposits
Maintain general ledger
Then, what is accounting? Accounting takes all those bits of monetary data from the bookkeeping process and explains what that financial data means. Some of the accounting tasks include the following:
Verify and analyse data
Prepare financial statements
Provide business forecasts
Bookkeeping vs. Accounting: Goals
Another difference between bookkeeping and accounting is each job’s overall goals.
A bookkeeper maintains a general ledger, a document that is a continuous, chronological recording of all financial transactions administered by an organisation. The purpose is to keep an accurate account to generate reliable financial information for the accounting process. Bookkeeping is the first step in the accounting process.
An accountant takes more of a big picture approach and completes an analysis of those bookkeeping financial transactions to determine the impact on the business. They will provide a business with financial insight by verifying and analysing data, generating reports, and spotting trends. This crucial information is significant to a business’s financial health and helps maintain its current financial pattern or growth.
Bookkeeping vs. Accounting: Skills and Education
Even though bookkeeping jobs do not require a special degree, there are certain skills that would be helpful. Bookkeepers should be methodical, detail-oriented, and highly organised. Also, understanding and feeling comfortable with math and using spreadsheets would be beneficial.
The definition of accounting requires someone who is an analytical, problem-solver with time management skills, and the ability to adapt. It is also helpful to be detail-oriented with critical thinking skills as an accountant must understand and communicate complex financial information. Although it is not required, acquiring knowledge of finance and accounting methodology is favourable to becoming an accountant due to the complexity and analytical nature of the job.
An accountant can be considered a bookkeeper, but not the other way around. If you are still deciding between bookkeeping vs. accounting, start with assessing the current financial position of your business. Compare that to how you want your business to grow financially and decide if this is something you can do on your own. If you decide you need someone who is all about the details of identifying, measuring, and recording all your financial transactions, hire a bookkeeper. If you need someone to interpret that financial data and give you more of an extensive picture look at your financials to help you make critical decisions, hire an accountant.
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