When talking about accounting vs. bookkeeping, it is key to understand what both of these things are exactly, and what are the differences between them. By Definition, Bookkeeping is primarily about identifying, measuring, and recording financial transactions while Accounting is the process of summarizing, interpreting, and reporting the financial transactions that have been classified into a ledger account.
Bookkeeping and accounting are two extremely important functions for any business organization. Simply put, an accountant is responsible for recording financial transactions, while bookkeeping is responsible for interpreting, classifying, analyzing, reporting, and summarizing financial data.
Bookkeeping and accounting may seem to the untrained eye to be the same profession. This is because both bookkeeping and accounting deal with financial data, require basic accounting knowledge, and classify and generate reports using financial transactions. At the same time, both of these processes are inherently different and have their own advantages.
Keep Reading this article to understand the main differences between bookkeeping and accounting. You will find below the basic differences outlined in both:
1. Decision making
Management cannot make decisions based on data provided by a bookkeeper. Depending on the data provided by accountants, management can make critical business decisions
The purpose of bookkeeping is to keep correct and systematic records of all financial transactions. The goal of accounting is to measure financial status and further report information to the relevant authorities.
3. Budget preparation
Budgets and financial statements are not prepared as part of the bookkeeping process. Financial statements are prepared during the accounting process.
4. Required skills
bookkeeping does not require any special skills, on the other hand, Accounting requires special skills due to its analytical and complex nature
The bookkeeping process does not require any analysis. Accounting uses accounting information to analyze and interpret data and then compile it into reports.
Basically, there are two types of bookkeeping: single-entry and double-entry. The accounting department prepares company budgets and plans financing proposals.
7. Bookkeeper and accountant
bookkeepers must be precise in their work and knowledgeable about financial matters. The work of bookkeepers is usually supervised by an accountant. Accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA)
Why have people been mixing the two job descriptions? Let’s talk about the changing landscape of accounting and bookkeeping.
Accounting and bookkeeping have been around for a long time, and both fields have seen tremendous changes in the way operations are conducted. In a similar way, this trend will continue in the future. Some of the upcoming trends in accounting and bookkeeping include:
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The merger of accounting and accounting functions
The line between accounting and bookkeeping services is slowly blurring. Interestingly, with the advent of bookkeeping and accounting software, some parts of bookkeeping are slowly being absorbed into the accounting process. At the same time, accounting software is now able to generate accounting statements that were previously part of the accounting process. Such software is in demand when accounting for small businesses especially.
1. Accounting alone will slowly become obsolete
While most businesses will still need an accountant to keep the books, bookkeeping services will become much more than just entering data, balancing bank books, and reconciling bank statements. These features will slowly decline over the next few years and may even become obsolete as accounting software drives most of your business
2. Extension of services
New technologies have convinced accountants and bookkeepers to be open to technological advancements and explore new software options. This is an opportunity for accountants to support their clients in this shift by showcasing value-added services such as payroll processing, credit card reconciliation, etc. with the help of the latest software
3. The advent of smartphones
More and more businesses are moving their operations online, especially as smartphones and mobile devices become more user-friendly and accessible. Business owners want to access data from anywhere in the world on a variety of devices, and accounting and bookkeeping professionals ensure that properly generated reports are available online for their clients at any time.
4. More efficient services
Consulting and consulting firms are taking full advantage of these new technologies and services through the development of analytical tools that streamline and significantly lower the cost of accounting and tax preparation services.
When should you hire a professional?
Here are three cases that indicate it’s time to hire a financial professional:
1. Your taxes are complicated
If your taxes are too complicated to handle on your own, with multiple streams of income, foreign investment, multiple deductions, or other considerations, it’s time to hire an accountant. An accountant can save you hours and help you stay on top of important matters like payroll, tax deductions, and tax returns.
2. You spend too much time in accounting
If you spend so much time worrying about accounting tasks that you’re unable to work to grow your business or keep existing customers happy, you’re doing your business a disservice. You can make more money in the long run if you leave your accounting to the professionals and focus on your growth prospects.
3. Your business is experiencing growth
Doing the bookkeeping and/ or accounting yourself may be fine when your business is small, but if your business is growing, it might be time to enlist someone to help you. You can start by contacting an accountant to balance the books once a month and a CPA to handle your taxes. Then, as your accounting needs increase, bring someone on staff.
Bookkeeping services might be provided by an accountant but someone who only knows bookkeeping cannot provide you with accounting for small businesses. A tax accountant, in this way, would be someone overqualified for a bookkeeper’s job. Majorly, a tax accountant is always separate from a bookkeeper.
This is an informative article. If you are looking for a tax accountant, bookkeeping services, or accounting for small businesses service provider, please get in touch.