Most individuals are aware that accounting and bookkeeping are connected to finance, but they mistakenly assume that the two fields are identical. While it is true that these fields are both pillars of business finance — that is, they play a fundamental role in assisting businesses in achieving a sound structure, effective operations, and a solid bottom line — they are actually distinct pillars of the process. In order to clear up any confusion, we will briefly go into what the two roles entail and clarify the meaning of bookkeeping vs accounting.
Function of Bookkeeping
Bookkeeping is a fairly narrow concept; bookkeepers simply keep books. More specifically, they continuously document, organize, and produce summaries out of financial transactions in order to organize a business’s recorded activity and keep precise financial information. The highest priority in bookkeeping is the transformation of raw data such as sales, purchases, and payments into coherent financial statements and other reports. This process thus forms the informational backbone of a business, which empowers management to understand its performance at a glance, oversee operations and craft strategy going forward. Bookkeeping is the foundation of the entire accounting process.
Function of Accounting
Accounting concerns the general picture of a company’s finances. Bookkeeping crucially transforms raw information into balanced books, but management needs more than data — they need insight into how their business is performing, potential risks, and how to increase profitability despite the uncertainties of the market. The accounting process is designed to answer precisely these questions. Accountants generate insights that empower stakeholders to make informed decisions about an organization’s state of affairs and future prospects. Accounting thus involves the abstract aspects of analysis and strategy.
Bookkeeping vs. Accounting: The Key Differences
Basically, bookkeepers track and organize data by recording and summarizing financial transactions, while accountants build on that information for high-level management and in preparation for tax time. The bookkeeper measures the pulse and other vital signs of the enterprise, while the accountant uses those measurements to address the larger picture and inform your most important decisions. In order to understand bookkeeping vs accounting, it is helpful to remember that the former enables the latter.
Common Roles in Bookkeeping
The procedure of bookkeeping has many facets. To keep the information accurate and current, bookkeepers perform their tasks consistently and continuously. After all, businesses encounter financial transactions every day. These transactions range from purchases and payments to receipts and sales — essentially, every instance where money changes hands. Bookkeepers must manage a careful record of these transactions and oversee data. They first record financial transactions in a journal or ledger, and then classify each transaction according to its type and purpose. In addition, bookkeepers produce invoices, handle payments, and reconcile bank statements. They prepare financial statements such as statements of equity and profit and loss reports, balance the accounts, consolidate the data into summaries, and summarize the information. These financial statements give partners a financial summary that quickly conveys the health of the company. Without professional bookkeepers and their consistent management of transactions and other financial information, businesses would lack reliable records and any informed understanding of their structure and performance.
Common Roles in Accounting
Accountants build on the bookkeeping process by using financial records to identify, analyze, and convey information to management, investors, and government agencies. Their work allows these stakeholders to make educated choices that put the company on its strongest footing and open doors to improved performance and increased profits. Among the many tasks that they perform, accountants generate financial statements, analyze and elucidate past performance, make future projections, create informative models, file taxes, and give strategic advice for growth and improved performance. These insights, in turn, inform how management develops its approach to strategy, illuminates potential risks or possibilities, and equips management to optimize performance as effectively as possible.
The Bottom Line
Despite the comparisons made in this article between the basic responsibilities of bookkeepers and accountants, these two professions actually have a lot in common. Both bookkeepers and accountants perform complementary functions in keeping financial records, and they frequently work together directly to guarantee that financial data is accurate, up-to-date, and compliant with legal requirements. They frequently communicate to address discrepancies in financial records and put their heads together to resolve them. Even when professional duties are completely separate, accountants and bookkeepers are still on the same team. Both bookkeepers and accountants perform best when they collaborate to meet their shared objective – giving your business the footing to grow and thrive.
Even beyond supporting each other, bookkeepers and accountants often have directly overlapping duties. The distinction between roles may become hazy under these circumstances. The two types of professionals may even perform each others’ functions, as when a bookkeeper for a company takes on some accounting tasks. For example, BooksTime often provides advanced reporting and advisory services as part of its bookkeeping service on top of keeping records. Nowadays, bookkeepers armed with powerful modern software can perform some roles that used to be performed exclusively by accountants. Accountants, similarly, occasionally step in to perform some bookkeeping tasks, such as verifying financial statements and other records.
Now that we are aware of the relationship between bookkeeping and accounting, who are the people who do these jobs? Bookkeeping vs accounting have distinct professional trajectories. The majority of bookkeepers possess at least an associate’s degree, are supervised by accountants and company management, and play a crucial part in a business’s daily operations. Most accountants have at least a bachelor’s degree in their field, and some even go on to earn CPA (Certified Public Accountant) certifications. Financial professionals in the United States — both accountants and bookkeepers — are subject to Generally Accepted Accounting Principles (GAAP) standards for quality and transparency in financial reporting. A company ordinarily requires both bookkeeping and accounting, and everyone wins when accountants collaborate with bookkeepers to achieve the desired results.
Seeking sound financial management for your business, but still unsure if you should enlist a bookkeeper, an accountant, or both? Contact BooksTime to find out more about our professional bookkeeping and accounting services. Our team of experienced specialists is ready to help with all of your bookkeeping records, saving you time and money while giving your company the strongest possible financial foundation.
