When a lot of people are thinking about accounting and bookkeeping, they have a hard time to understand the differences each process has. We will look at how the two are different along with the differences in the roles of accountants and bookkeepers.
Even though accounting and bookkeeping have common goals, they are both different stages in a financial cycle. Let’s look at the processes that each of them includes.
Bookkeepers Functions
Bookkeepers record the daily transactions consistently and it’s a big component when you want to build a business foundation that is strong.
Bookkeeping includes:
- Recording the financial transactions
- Posting the credits and debits
- Production of invoices
- Maintaining as well as balancing general ledgers, historical accounts and subsidiaries
- Completing payroll
Maintaining the general ledger’s one of the biggest things in bookkeeping. This is a very basic document in which the bookkeeper will record all of the amounts from expense and sale receipts. This is spoken of as posting and when there are a lot of sales, there are more posting to the ledger. The ledger is able to be created using specialized software, a spreadsheet, or you can even use a piece of paper.
How complex a company’s bookkeeping system is will depend on the business’ size and how many transactions there are each day, each week and each month. All of the purchases and sales that are made by the business should be put into the ledger and some of the items will need a document to support them. There are documents that the IRS lays out clearly on the website that you need for supporting what you are saying.
Shifting Landscapes
It’s very interesting to know that since bookkeeping and accounting software has been created, some of the items in accounting were absorbed by bookkeeping. As an example, software used for bookkeeping usually can build financial statements and this blurs some of the lines in between the accounting and bookkeeping processes.
Accountants Function
Accounting’s a process that is high level that takes the information that was compiled previously and puts it into terms that are easy to understand. It then makes financial models with that information. Accounting’s process is much more subjective when compared with bookkeeping, since that’s more transactional.
The accounting process includes:
- Preparing the financial statements of the company
- Preparing the adjusting entries (this is recording the expenses which happened but the bookkeeping process hasn’t recorded them yet)
- Analyzing operation costs
- Completing tax returns
- Aiding the owner of the business in understanding how financial decisions impact them.
The accounting process provides the owner with reports which bring together key and important financial indicators. This results in a much better understanding when it comes to the profits and makes the owner aware of the way that cash is flowing in their business. An accountant will turn the information from the bookkeeper’s ledger into the statements which will reveal the business’ bigger picture and the company’s path they’re currently on. A business owner will often look to an accountant for help with strategizing tax planning, tax filing, and financial forecasting.
The Bookkeeper’s Role vs The Accountant’s Role
It’s empowering if you own a business to realize the difference in between accounting and bookkeeping. But you should also understand the types of credentials bookkeepers and accountants possess so that you can determine when or how each professional should be utilized. Below we will look at what the role of an accountant or bookkeeper entails.
The Accountant: So that someone can become an accountant, they have to have a bachelor’s in accounting. If you don’t have a specific accounting degree, finance degrees are often adequate substitutes. An accountant, unlike a bookkeeper, also are eligible to get other professional certificates. A good example is the accountant that has a lot of education and experience who becomes a CPA, which is the type of accountant that a lot of people are familiar with. To get this, they have to pass their UCPA exam and they also have to have experience in the professional accounting field.
The Bookkeeper: Usually a bookkeeper must have 2-4 years’ experience or their associate’s degree. So that they can be successful, they have to be very accurate and they have to know about the key topics when it comes to finances. Usually the bookkeeper will be overseen by the owner of a small business or an accountant.
In Conclusion
When you want to have a successful business, it’s a good idea to have both a accountant and bookkeeper who can work in harmony. Financial records that are organized and finances that are properly balanced produced by the accounting and bookkeeping process both are key factors to helping you succeed. Some of the business owners will manage their business’ finances personally and others hire professionals so that they are able to put their focus on other facets in their business. No matter what option you’ve decided on, investing money or time is going to help with your business growing.
