Bookkeeping and accounting are the building blocks for the growth of any business. Yet a majority of small business owners do not have a clear understanding of these concepts and use the terms interchangeably.
Unaware of the differences, many businesses end up hiring a bookkeeper when they actually need an accountant, or the other way around. This could risk their ability to build a direct path to long-term success. Below we break down the differences between the two roles.
Bookkeeping
Bookkeeping is the process of recording and organizing the business transactions that yield a snapshot of your business’s present financial position. Additionally, as basic bookkeeping is the minimum threshold for qualifying for various loans, grants, and federal programs such as the Paycheck Protection Program (PPP), it becomes all the more important to ensure that the company’s bookkeeping is both accurate and up to date.
What does a bookkeeper do?
Although a bookkeeper may have a business or bachelor’s degree, it’s not a requirement. You may find that a number of skilled bookkeepers who have years of experience do not possess a business degree.
Here are the common responsibilities of a bookkeeper:
- Recording daily transactions – culling from source documents and posting journal entries into accounting software.
- Reconciliations – reconciling bank accounts and reviewing the general ledger to ensure financial information is posted correctly.
- Data entry – recording the financial data required to process payroll and to track debits and credits. Incorporating changes to employee tax withholdings and wage rates so net pay is calculated correctly.
- Money monitoring – tracking accounts payable and receivable to ensure vendors are paid on time and that collections are received on time.
- Report generation – producing accurate financial statements and other reports for company executives.
Accounting
While bookkeeping comprises recording a business’s financial data, accounting is the forward- and backward-looking analysis of that collected data. Simply put, accounting is a measurement tool that allows small business owners to manage their progress.
What does an accountant do?
The role of an accountant requires a higher level of expertise and education versus a bookkeeper. Generally, accountants hold an accounting degree and are registered as a certified public accountant. Having passed their state’s CPA exam, they possess up-to-date knowledge of tax codes and processes as well as changing tax legislation.
Here are the common responsibilities of an accountant:
- Generating financial statements – adjusting the trial balance; generating income statements, balance sheets and cash flow statements.
- Preparing tax returns – producing the financial reports required to generate tax returns; preparing tax filings and sending them to the IRS.
- Addressing government requirements – preparing the legal or compliance documents as required by state or federal law.
- Weighing financial decisions – serving as an adviser for company decisions by providing breakdowns and analyses of financial conditions. For instance, determining the financial ramifications of purchasing new equipment or taking out a line of credit.
Recap, bookkeeper versus accountant
A bookkeeper is responsible for recording the company’s financial transactions in a systematic manner. An accountant is responsible for using that recorded data to interpret, analyze and report on the business’s financial health. Accountants are also more qualified to advise on taxes.
Should you hire an accountant or bookkeeper?
There’s no easy answer that suits every situation. The most important thing to remember is that bookkeepers play a vital role in organizing and managing financial records, while accountants bring deeper financial expertise and advising to the table.
As your company grows, it will have a higher volume of financial transactions. You might start out by handling your business’s accounting tasks yourself, then decide to delegate the day-to-day transactional input to a bookkeeper as the firm expands.
As the demands for financial recording, analysis, compliance, reporting and cash flow management come into play as your business grows in complexity, more time and expertise will be needed. Be prepared to hire an accounting professional who can keep your complete accounting system on track and in good standing, free up your time and advise you in making informed business decisions.
