Summary: The term bookkeeping and accounting often overlap and many assume they are the same. Let’s learn the difference and how these two functions are vital to your business
Bookkeeping and accounting are both essential functions in businesses.
However, many assume they are the same profession and use these terms interchangeably.
While both assist you with your finances, there are some important distinctions between the duties of a bookkeeper and an accountant. Let’s take a glance at the article, which explains the difference between bookkeeping and accounting
Image: Beginner Bookkeeping
As the word suggests, bookkeeping is about ‘keeping books’ and is the first step in the accounting process.
A bookkeeper will assist you with the ongoing financial recording and transactions that keep your business running smoothly.
His or her role is to keep an accurate and complete record of the financial transactions of a business in a systematic matter. Bookkeepers record financial transactions in chronological order and ensure the entries are correct on a daily basis.
Bookkeeping involves collecting every single financial transaction such as purchases, sales, receipts, and payments made by an individual person or a corporation.
Then, the bookkeeper will post the transactions to a general ledger. The general ledger is a basic document where the bookkeeper records the amounts from sale and expense receipts.
While the bookkeeper’s role is to record the financial transactions, he or she puts less focus on the analysis of these transactions. This is where the accountant comes into the picture.
Accountants further classify, analyze, summarize and interpret the financial records kept by bookkeepers.
Accountants build on the information provided by the bookkeeper and prepare reports such as financial statements based on the information. The financial statement prepared by the accountant will state about the wealth, profit and financial position of the company which can be easily understood by its key players such as investors, employees, creditors, suppliers, managers, government and the general public.
Measuring profit is also a critical task that accountants perform. Measuring profit also highly depends on the accuracy of the information recorded by the bookkeeper. The accountant decides how to measure sales revenue and expenses to determine the profit or loss for the period.
Your accountant will be the best person to give you financial advice by analyzing the data produced by your bookkeeper.
Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for interpreting, classifying, analyzing, reporting and summarizing financial data. The biggest difference between accounting and bookkeeping lies in the analyzing and interpreting the financial data.
Nevertheless, every business and not-for-profit entity needs a reliable bookkeeping system based on established accounting principles. Organized financial records and balanced finances produced by the bookkeeper along with smart financial strategy and accurate tax filing by the accountant will contribute to the long-term success of your business.