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Bookkeeping versus accounting: What Is their difference?

Posted by Early Growth

September 27, 2021 | 5-minute read (801 words)

Bookkeeping and accounting are often considered interchangeable terms to the untrained eye. Both functions are vital to the financial health and reporting requirements of any organization in every industry. However, they play different roles. Failure to understand the difference between bookkeeping and accounting could lead to poor financial decisions and missing out on the advantages of both these concepts. Therefore, all entrepreneurs must be aware of bookkeeping vs. accounting.

What is Bookkeeping?

Account bookkeeping is the process of consistently recording daily transactions. It is the most basic form of gathering financial information needed to determine the future direction of a business. The primary functions of bookkeeping include:

Recording financial transactions
Noting debits and credits
Generating invoices
Preparing financial statements
Balancing the books, such as the general ledger Finishing payroll

Bookkeepers are responsible for managing the general ledger, which is a basic document of sales and receipts. Ledgers will often be digitized, but can be as simple as a piece of lined paper.

What is Accounting?

The accounting vs. bookkeeping definition is often confusing, which can cause problems for businesses just getting started. Accounting is a high-level process designed to produce financial models. Rather than an exclusively transactional approach, accounting aims to direct the business and help decision-makers understand every financial aspect of the organization. Some of the functions of the accountant include:

Reviewing financial statements
Analyzing the cost of operations
Completing corporate tax returns
Supporting the business owner in making decisions

The role of the accountant is critical to the success of any business. Failure to carry out these functions correctly can have dire long-term consequences for the financial health of an organization. For this reason, accountants must be highly qualified and experienced to practice.

There are significant differences in bookkeeping versus accounting, but it’s not uncommon for the roles to be merged. One of the main industry trends is for accountants to take on the functions of a bookkeeper.

What is the Difference Between Bookkeeping and Accounting?

Understanding bookkeeping vs. accounting is important for entrepreneurs to properly leverage the advantages of each distinct role. By understanding bookkeeping and accounting, the difference between them, and their functions, entrepreneurs can avoid confusion and ensure each position has the resources it needs to function at peak optimization. Here are the main differences between the two roles, as defined by various areas:

Definition
– Bookkeeping identifies and records financial transactions. Accountants summarize and interpret them.
Decision Making
– Accountants present information to enable management to make a decision. Decisions cannot be made based on the work of a bookkeeper.
Goals
– In book keeping vs. accounting, the goal of the bookkeeper is to accurately record transactions consistently, whereas the accountant must measure the financial situation and communicate this information to upper management.
Financial Statements
– Only the accountant has any control over financial statements. Accountants use the recordings of the bookkeeper to produce financial statements.
Skills
– Anyone can be a bookkeeper, but accountants require specific qualifications in financial analysis.
Types
– Bookkeepers specialize in single and double-entry bookkeeping, with the latter being the gold standard of business bookkeeping. Accountants are highly specialized and may help with everything from financial modeling to loan proposals.

While there are similarities between the two roles, the bookkeeper is a role that requires less formal training, whereas accountants are highly qualified and must possess certain qualifications to practice. While the process of bookkeeping remains important, it will never define the financial health of a company or play a part in important business decisions.

The Relationship Between Bookkeeping and Accounting

The simplest way to think about bookkeeping vs. accounting is to remember that bookkeepers manage day-to-day transactions, whereas accountants use that information as part of their analysis to help an organization make the big decisions. Most bookkeeping roles are overseen by an accountant, and there is significant momentum in the financial landscape today to remove the bookkeeping role entirely from modern businesses. With modern Point of Sale (POS) systems automating most of the bookkeeper’s duties, the accountant no longer needs the bookkeeper to gather necessary transaction data.

Further Digitization of Bookkeeping and Accounting

The relationship between the two roles has been further altered by the onset of the digital world. Bookkeepers are fast becoming surplus as opposed to requirements, and most of their work can be fully automated and organized via online, automated systems. Furthermore, organizations now expect accountants to take on much of the burden normally handled by bookkeepers. Within smaller organizations, the bookkeeping and accountancy roles have essentially been merged for cost, need, and efficiency.

Conclusion

It’s not uncommon to see business owners confuse the roles of bookkeeping and accountancy. Unfortunately, this confusion is what leads to businesses not keeping on top of their finances. With the help of Early Growth, you can outsource your bookkeeping and accounting and spend.

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Bookkeeping versus accounting: What Is their difference?

What is Bookkeeping?

What is Accounting?

What is the Difference Between Bookkeeping and Accounting?

Definition

Decision Making

Goals

Financial Statements

Skills

Types

The Relationship Between Bookkeeping and Accounting

Further Digitization of Bookkeeping and Accounting

Conclusion

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