Bookkeeping and accounting may sound like interchangeable terms, but they each have their own functions in the accounting process. Bookkeeping is administrative, recording and classifying all financial transactions. Accounting deals more with logical and analytical processes. Accountants examine and interpret the financial data the bookkeeper records.
The Bookkeeping Process
Bookkeeping is the recording of the daily financial transactions of a business. This process should be continuous and be performed with utmost accuracy.
Common Tasks Performed by Bookkeepers:
- Record day-to-day financial matters
- Classify each entry as a credit or debit and post it to the appropriate journal
- Create invoices
- Manage payroll
- Balance ledgers and accounts
One of the most important jobs a bookkeeper has is to maintain the general ledger. A general ledger is the main accounting record of a company, it is used to sort, store, and summarize all transactions that occur in a business. A ledger can be written in a physical book or can be created on a computer using software or a special database.
The bookkeeping process can be simple or complex, it all depends on the size of your business and the number of financial transactions that occur on a regular basis. Some transactions require supporting documentation, but all transactions need to be recorded in the ledger.
The Accounting Process
Accounting is much more difficult than bookkeeping and involves logical and analytical thinking. An accountant takes the data the bookkeeper tracked to look at the business’s financial status as a whole and make predictions about the future of the business.
Bookkeeping is a transactional process, while accounting is more subjective in nature.
Common Tasks Performed by Accountants:
- Record adjusting entries (transactions that have occurred but are not part of the bookkeeping process)
- Go over the financial statements
- Help business owners make financial decisions
- Examine the costs of operating the business
- Complete income tax returns
Your accountant’s main goal is to help you make the best financial decisions for your company by examining the financial reports created. They will focus on the big picture, to help an owner understand the financial status of their business. Accountants are an important resource for business owners, they can give advice on tax planning and filing and give you predictions on where your business can go in the future.
Bookkeeper or Accountant?
While the work a bookkeeper does can be completed by an accountant and some accounting tasks can be performed by seasoned bookkeepers, the two professions have different requirements. Put simply, a bookkeeper is a record keeper, and an accountant is an analyzer.
To become a bookkeeper, you really only need a knack for numbers and an eye for details. There is no formal education required, however there are certifications available. An accountant will review and oversee the work completed by a bookkeeper.
To become an accountant, you need at least a bachelor’s degree in finance. Most accountants also go on to get a CPA license and master’s degree. A CPA (certified public accountant) license is earned by completing a certain number of higher learning credits and passing the required examinations. While attaining the required credits, many choose to continue on and earn their master’s degree.
With a bookkeeper maintaining the financial records and an accountant giving financial advice, a business is much more likely to succeed and flourish. Some owners may choose to manage their finances themselves, while others will outsource the job to a qualified professional. As long as you are maintaining your books and monitoring your finances, your business is on the road to success.