Bookkeeping vs Accounting: What’s the Difference?

A bookkeeper must be able to shift focus easily and catch tiny, hidden mistakes in a budget or invoice. They often bookkeepers work a few jobs for various clients if they work as a consultant. To learn more about the basics of accounting and bookkeeping, read our Accounting 101 article. It’s crucial, however, to have a clear understanding of your finance process, to determine the extent of expertise required. When navigating the financial landscape of your business, the decision of whether to hire a bookkeeper or an accountant can be daunting.

1. Bookkeeping focuses on the day-to-day financial activities and transactions of a business.
2. Bookkeepers and accountants can work together but they have different skills.
3. To receive this certification, an accountant must pass the required exams and have two years of professional experience.
4. With the help of an accountant, you may be able to identify and navigate tasks including strategic tax planning, acquiring assets, calculating growth, and analyzing investment opportunities.
5. They often bookkeepers work a few jobs for various clients if they work as a consultant.
6. Accounting consolidates financial information to make it understandable and clear for all stakeholders.

To qualify for the title of an accountant, generally an individual must have a bachelor’s degree in accounting. For those that don’t have a specific degree in accounting, finance degrees are often considered an adequate substitute. In the U.S., an enrolled agent (EA) is a tax preparer authorized by the IRS to represent taxpayers. To become an EA, they have to pass a 3-part comprehensive exam covering individual and business tax returns or have experience working for the IRS.

Best Accounting Software for Small Businesses

For instance, a bookkeeper might recommend the software for a double entry system of accounting, but the accountant would approve it. Bookkeeping is a great starting point if you are interested in the field but not fully committed and want to test the waters. You may also be an ideal bookkeeping candidate if you want a good job with a respectable wage and decent security but may not inventory classification be looking for a long-term career. Bookkeeping offers much lower barriers to entry, and the competition you face in the job search is less fierce. It is not an unusual career move for a bookkeeper to gain experience at a job, study, get certified, and work as an accountant. Bookkeepers are commonly responsible for recording journal entries and conducting bank reconciliations.

In short, accounting is the process of interpreting, classifying, analysing, reporting and summarising financial data collected during the bookkeeping stage. Essentially, bookkeeping means recording and tracking the financial aspects of the business in an organised way. It is essential for every healthy business, but is also useful for individuals and non-profit organisations. Other programs charge annual or monthly fees and offer advanced features such as recurring invoices or purchase orders. While these services come at a cost, they can maximize the accuracy and efficiency of vital financial management processes.

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The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. The more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper. Now that you understand how bookkeeping and accounting differ, it’s time to decide which one is right for your business. While this decision is personal and depends on your needs and business goals, here are some signs it’s time to outsource your bookkeeping and accounting needs.

Bookkeeping does not depict the operating results of a business, whereas accounting indicates the operating results of a business. According to the BLS, the median salary for an accountant in 2021 was $77,250 per year or $37.14 per hour. However, their years of experience, your state and the complexity of your accounting needs affect the price.

Difference Between Bookkeeping and Accounting (PDF)

If strategic financial planning is what you’re after, an accountant might be the better choice. One pivotal distinction between the two roles is that accountants typically prepare and analyze financial statements, which can offer valuable insights. These statements are generated using the records maintained by bookkeepers. For small businesses, these reports are vital, often serving as the primary financial insights that guide decision-making.

However, bookkeepers will face pressure from automation and technology that will reduce the demand for such workers. With bookkeepers, there are a lot of minutiae involved, and keen attention to detail is paramount. Accountants, on the other hand, tend to use the bookkeeper’s inputs to create financial statements and periodically review and analyze the financial information recorded by bookkeepers. We’ve listed some of the key differences when it comes to the requirements and job market for each. Small businesses need to ask important questions, such as ‘What is the difference between bookkeeping and accounting?

The information a bookkeeper is responsible for gathering and managing affects how an accountant will interpret the financial information of the company. Based on this information, the accountant provides recommendations to management or the company’s owners about spending, tax issues or other financial concerns. You can become a bookkeeper right out of high school if you prove you are good with numbers and have strong attention to detail. In fact, many aspiring accountants work as bookkeepers to get a foot in the door while still in school. Bookkeepers who excel at their jobs are also sometimes promoted to accounting positions, even if they lack the level of education the company typically prefers.

In light of the above discussion, it can be established that there is a usual overlapping between the roles of a bookkeeper and an accountant. A bookkeeper cannot call himself a CPA (Certified Public Accountant) unless he achieves the designation. A CPA is earned after completing specific educational and work requirements, and passing an exam. A bookkeeper also has a duty to keep the information he processes confidential, as he will be privy to sensitive financial information, including payroll salaries. An accountant usually has a degree or certification (CPA), and is paid better than a bookkeeper.

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They may take some finance-related classes at the college level, but even this is not a requirement. The American Institute of Professional Bookkeepers offers a Certified Bookkeeper designation, which can set professional bookkeepers apart from others. While a bookkeeper can help with the precise details of the business, an accountant is better suited to do bigger-picture analysis and strategic planning. As your small business grows, the financial side of running a company inevitably becomes increasingly complicated.

Bookkeeper Duties

There’s often overlap, and the duties may change a lot from one business to another. Sure, most small-business owners don’t start businesses because they’re accounting experts. But keeping accurate books and understanding what the numbers mean can spell the difference between business success and failure.