The differences between accounting and bookkeeping are subtle but important when you are thinking to pursue a career in either field. Bookkeepers record the everyday transactions related to the finance of a business whereas accountants, on the other hand, focus more on profound analysis.
Bookkeepers collect and organize financial data, while accountants analyze and interpret that data. They can also sometimes work together on the same set of data, with bookkeepers collecting the most relevant information so that accountants can have access to it.
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An accountant might consult with a bookkeeper to clarify their financial records or gain additional insight into their daily expenses. Both parties share a goal of supporting the financial health of a business or individual by maintaining accurate and organized information, but they typically work with different steps in the process.
Some Major Differences Between Bookkeepers & Accountants
|Usually, vacancies for bookkeepers do not ask for specific education requirements, but instead, emphasize past clerical work experience. Good bookkeeping courses and having a university degree can however increase your chances of finding employment.
|Basically, accountants should at least have a degree in bachelors. However, it doesn’t necessarily have to be in accounting. It can be in any other finance-related field.
|The Daily Task Involves:
Maintaining the general ledger from time to time.
Posting all income and payments.
Makes sure that financial records go with the federal documentation requirements.
Process paychecks and manage payroll accounts.
Performing simple tax deductions.
Generating daily budget reports
|The Daily Task Involves:
Examining expenses and recommending areas where the company can save money.
Makes sure that the company complies with tax law.
Predicting the results of various financial decisions.
Staying up to date with the information on tax law and procedures.
Bookkeepers and accountants often have similar, overlapping responsibilities because Bookkeeping is a part of the accounting process.
A bookkeeper keeps an accurate record of company financial transactions (e.g., sales, payroll, payment of bills, etc.), leaving the understanding and interpretation to another role.
Accountants work closely with the bookkeeper to find out relevant information. An accountant’s role generally includes:
- Performing a review of financial statements maintained by the bookkeeper.
- Examining and understanding this information.
- Converting records into reports.
- Providing appropriate advice related to what they’ve reported.
With each important step in the financial process, the one just before it, and how it affects the next step’s outcome, the bookkeeper needs to be able to provide a piece of an accurate record. This allows for a more accurate account of all finances in order to produce intelligent and reliable advice by an accountant that is used to turn around any business that may be encountering problems.
Find out What Your Company Needs: Bookkeeper or Accountant?
It’s important to consider whether you’ll need to hire a bookkeeper or an accountant. For the most part, the decision may depend on your industry and how much expertise needs to be attained.
A bookkeeper is usually:
- Economical to appoint.
- A perfect choice for dealing day to day transactions.
However, if you need help with maximizing the potential of your business, you’ll need advice from a qualified accountant.
What are some of the things to consider when deciding what your organization needs?
- Inventory Size
- The number of employees.
- Your Industry.
- Different services that the company offers.
Industries that work with complex financial, tax, or accounting systems must involve accountants. An experienced and skilled bookkeeper who has years of experience can be more qualified to run the books for your business than a recent accounting graduate.
The Function of Bookkeeping
Daily records are vital for running a profitable business. While not exhaustive, bookkeeping is the process of recording daily transactions in a consistent way.
- Generating invoices.
- Recording financial transactions.
- Maintaining financial statements.
- Posting credits and debits.
- Preparing and maintaining general ledgers, subsidiaries, and historical accounts.
Maintaining a general ledger is a bookkeeping process that typically involves recording the amounts from sales and expense receipts. This posting process happens more often as more sales are completed. A ledger can be created with specialized software, computer spreadsheets, or simply lined sheets of paper. A company’s bookkeeping system can be complicated depending on the size of the business and the number of transactions completed daily, weekly and monthly.
The Function of Accounting
Accounting is a process that uses definitive data compiled by a bookkeeper or business owner to produce financial models.
If we compare the accounting process with bookkeeping, the former is more subjective and the latter is more transactional.
- Filing income tax returns
- Examining costs of operations
- Going through the company’s financial statements
- Helping the business owner in understanding the outcomes of financial decisions
An important part of accounting is analyzing financial reports to help you make business decisions. This provides better insight into your company’s true profitability and financial health. Accountants assist with important day-to-day tasks such as planning ahead for taxes and even forecasting what is to come in the future. Accountants often provide significant third-party support and they will be looked to for help with strategic tax planning, analyzing the financial position, and more.
Managing finances professionally is a must for any business owner and hiring professionals can help you avoid costly mistakes. An accounting pro can help you create an effective business plan, saving you time and money in the future. Having a bookkeeper handling your finances will free up your time, allowing you to focus on what matters most: Your business.
Accountants and bookkeepers do have certain skills that are common, even though they might use them in different ways. Some common skill that accountants and bookkeepers both employ are
- Written Communication: Accountants and bookkeepers need to effectively convey their information so others will understand it quickly. In order to achieve this, they must have strong writing skills that can be clear and easy for others to read.
- Attention to Detail: With attention to detail as an essential skill for both accounting and bookkeeping, the skills can overlap quite a bit. Accountants should be able to notice small changes in someone’s financial health while bookkeepers need to keep meticulous records of every transaction made.
- Mathematics: Accountants and bookkeepers are essentially required to be proficient in performing basic arithmetic operations every day, which is also helpful when it comes to taxes and investments.
- Organized: To be efficient, bookkeepers and accountants need to be very organized not only in their current job but also to be able to easily and quickly access financial records.
- Computer Skills: With a low barrier to entry, many people and businesses use spreadsheets and computer software. Computer literate individuals are needed to navigate through the various interfaces that these programs deliver. Furthermore, accountants need some computer literacy skills to access and analyze this data.
- Problem Solving: As accountants, they apply their problem-solving skills to the unique requirements of their employers or clients. Bookkeepers are a common subset of accountants because they use their skills to solve any discrepancies between accounts and navigate complex administrative processes.
Advantages of a Bookkeeper
The benefits of hiring a bookkeeper to file and document your business’s financial records are vast. These include:
- By appointing a bookkeeper, you can track and organize your financial documents and reports. If you later decide to hire an accountant, you can use your bookkeeper’s records as references, basically saving you money in accountant fees.
- Accountants charge more than bookkeepers, but the difference in fee is based on how much documentation is required to file and calculate different accounts.
- For quick and easy analysis of your business’s financial status, a bookkeeper is an effective alternative to accountants. Accountants offer biased or estimated versions of their analysis, however.
Advantages of An Accountant
When you hire a small business accountant, you gain many benefits. A few of these advantages include:
- With limited responsibilities, bookkeepers only process financial transactions. Since an accountant has a wider view of the business’s financial state and is more knowledgeable about strategies and advice, they are better suited to make financial decisions.
- Accountants often possess special knowledge such as taxes and investments that bookkeepers would not possess because accounting involves a much broader set of skills.
- Because they have certifications in finance and experience with complex business issues, accountants can provide evidence regarding taxation procedures that benefit your business. Accountants can also help businesses avoid trouble with the IRS by filing corporate returns.
Bookkeeper vs. Accountant Work Environments
Bookkeepers and accountants, because of the similar work environment and their relationships with other positions, are often in an efficient workflow. They often function as individuals but often collaborate with other positions to improve communication and work to create efficiencies for the larger team in an office. Accountants and bookkeepers have the opportunity to earn extra during busy times of the year, such as tax season. Generally, accountants and bookkeepers need to work full time throughout the year and are often able to earn overtime pay which makes them more financially eligible.
Accounting Software: An alternative to appointing an accountant or bookkeeper
The accounting practices of your business might not require the level of detailed knowledge provided by a professional accountant. You might also be looking to reduce your expenses and wondering how to do this. If you decide to handle it yourself or delegate this responsibility to one or a few of your employees, they can use guided reporting and automation technology with accounting software.
Accounting software allows individuals and businesses to track and manage their business needs accurately and efficiently. To determine the right accounting software, consider your budget and the extent of your business’s needs.
Many accounting programs offer free versions that cover basic uses such as tracking income or generating reports. For example, Wave Financial offers its services for free and allows an unlimited number of people to collaborate on finance projects.
While these services come at a cost, they can make your paperwork more accurate and efficient. These advanced features are not free, but even small discounts make these apps worth it for many companies. These additional functions are to make the accounting process faster for businesses.
When to Hire a Financial Professional?
It is often difficult to determine the appropriate time to hire an accountant and bookkeeper. Many small businesses hire a professional as an outside consultant, but there are several ways to manage finances. For instance, One way some small businesses save money is by doing their own bookkeeping, which the accountant can then call for their attention once a week, monthly or quarterly. Other small businesses hire a bookkeeper with an accounting department that runs data entry clerks. Along with asking questions or searching on social networks, it is always a good idea to ask your friends or colleagues for referrals. Make sure to plan out which bookkeeper would best fit to work underneath you.
If you are not sure if hiring a financial professional is right for you, here are three instances that suggest it’s time to hire one:
- When your taxes have become too complex to handle on your own, hiring an accountant is the best option to streamline complicated accounting matters like payroll, tax deductions, and filing. With an accountant by your side, you can stay on top of important matters and save hours with complex processes.
- Expertise like accounting can be very valuable, but if you’re not able to focus on your business, it’s hurting your bottom line. You are likely to make more money by putting accounting tasks in the hands of professionals who are skilled at handling large sums of money and making business decisions.
- If your business is small and you’re currently doing all of your accounting yourself, bring on the help. First, consider contracting with a bookkeeper who balances the books once per month and a CPA to handle taxes. As your bookkeeping needs grow, it’s time to hire someone for more in-depth account tasks.
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