You have to keep track of a lot as a small business owner. That’s why it’s so important to understand the nuances between bookkeeping and accounting. Both of these aspects of your business are crucial for financial management and decision-making. Today, we’ll go over the differences between bookkeeping and accounting so that you can figure out how to allocate resources effectively.
What Is Bookkeeping?
Bookkeeping is the daily financial tracking of all of your daily financial transactions. The bookkeeper of a business might choose to use online bookkeeping software to track everything.
How To Find a Bookkeeper
Bookkeepers don’t need any specific certifications, but you want to make sure whoever works on your company’s bookkeeping is extremely organized. Even if you are using an online system for bookkeeping, delegating an employee with keeping track of it on a daily basis is very important.
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What Is Accounting?
Accounting is for trained professionals who can give a fuller summary of your company’s financial realities. Accountants rely on financial statements from bookkeepers to do their work, but they also look for larger trends and the way money works across the business.
How To Find An Accountant
Accountants are more specialized, so not every company has an in-house accountant. You can use a firm or work with accounting software for your business needs.
Bookkeeping vs Accounting: Key Differences
Both bookkeepers and accountants need to be comfortable working with numbers all day. Bookkeepers especially should be able to spot issues with daily expenses and make sure all the data points are tracked correctly.
Bookkeeper Duties
Bookkeepers are extremely involved in daily company operations. They need to be involved in every process where payments occur. Bookkeepers need a strong grasp of all financial details in the company so they know if there are any inconsistencies.
Accountant Duties
An accountant needs strong and accurate bookkeeping to do their work. However, their work is different. They look at all of the financial details of a company so they can make larger decisions about how the business operates.
Accountants advise leadership on how to make more strategic financial changes that save the company money or generate more profit. For some of the businesses that they do, accountants also need to be registered certified public accountants (CPAs).
Common Roles in Bookkeeping
In addition to daily finance tracking, bookkeepers manage the following process:
- Managing payroll for employees
- Tracking invoices from vendors, contractors, and more
- Keeping track of bill payments
The bookkeeper should be able to answer all questions about daily finances and the status of payments.
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Common Roles in Accounting
On the other hand, an accountant uses financial reports from the bookkeeper to do other kinds of analysis work:
- Budget management and changes
- Managing tax filing and returns
- Analyzing and advising business operations
Accountants are largely responsible for the financial health of a business. If they notice expenses are going over budget or under budget, they can look into what’s causing this discrepancy and make recommendations to resolve these problems.
Bottom Line
Bookkeepers and accountants are both critical for the financial health of a company. If you’re not tracking daily expenses, you’ll have very little information to give to your accountant and they won’t be able to make informed decisions. If you’re only focusing on expenses and not big-picture financial data, you’ll miss out on some strategic opportunities.
Frequently Asked Questions (FAQs)
Are bookkeeping and accounting different?
Bookkeeping focuses on recording and organizing financial data, including tasks such as invoicing, billing, payroll and reconciling transactions. Accounting is the interpretation and presentation of that financial data, including aspects such as tax returns, auditing and analyzing performance.
Is accounting better than bookkeeping?
Both accounting and bookkeeping are necessary for a company. Bookkeepers don’t need a special certification, but a good bookkeeper is important for an accountant to have accurate financial records.
Is bookkeeping hard to learn?
If you are good at math and have an eye for detail, bookkeeping is not too hard to learn. These are key skills for bookkeepers, so if you’re not a fan of math at all, it may not be the best career path.
What is the best bookkeeping software for small businesses?
The overall best bookkeeping software includes Zoho Books, FreshBooks, Xero, and Intuit QuickBooks. Which is right for you will depend on your business’s needs. Learn more about the best bookkeeping software for small businesses.