Simply put, bookkeeping is more administrative, concerned with accurately recording financial transactions. Accounting is more analytical, giving you strategic insights into your business's financial health based on bookkeeping information.
In this guide, we'll explain the functional differences between accounting and bookkeeping, as well as the differences between the roles of bookkeepers and accountants.
Key differences between bookkeeping and accounting
The function of bookkeeping, and how it fits into accounting
Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to gathering the financial information needed to run a successful business.
Bookkeeping comprises:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Preparation of financial statements (balance sheet, cash flow statement, and income statement)
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
- Completing payroll
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sales and expense receipts. This is referred to as posting. The more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or even a lined sheet of paper (although we wouldn’t recommend it!).
The complexity of a bookkeeping system often depends on the size of the business and the number of transactions completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The IRS lays out which business transactions require supporting documents on their website.
The transactions that you record in your bookkeeping are also the foundation of your accounting. Accounting practices require the pulling and analysis of financial data—in other words, everything that’s recorded in your ledger, among other financial transactions like loan disbursem*nts or payments.
The function of accounting
Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial models.
The accounting process is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
- Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
- Reviewing company financial statements
- Analyzing costs of operations
- Completing income tax returns
- Aiding the business owner in understanding the impact of financial decisions
A key part of the accounting process is analyzing financial reports to help you make business decisions. The result is a better understanding of actual profitability and an awareness of cash flow in your business. Accounting turns the information from the general ledger into insights that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, analysing their financial position, forecasting, and tax filing.
The roles: bookkeeper vs accountant
Bookkeepers and accountants sometimes do the same work, but have a different skill set. In general, a bookkeeper's role is to record transactions and keep you financially organized, while accountants provide consultation, analysis, and are more qualified to advise on tax matters.
Bookkeeper credentials
Typically, bookkeepers aren't required to have any formal credentials or licenses. To be successful in their work, bookkeepers need to be sticklers for accuracy, and knowledgeable about key financial topics. Usually, the bookkeeper's work is overseen by either an accountant or the small business owner whose books they are doing.
Accountant credentials
To qualify for the title of an accountant, generally an individual must have a bachelor's degree in accounting. For those that don't have a specific degree in accounting, finance degrees are often considered an adequate substitute.
Accountants, unlike bookkeepers, are also eligible to acquire additional professional certifications. For example, accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA), one of the most common types of accounting designations. To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a professional accountant. These required credentials are a determining factor in the cost of an accountant.
Additional Resources:
- How to Hire the Right Bookkeeper for Your Small Business
- How to Find an Accountant
What are the differences between bookkeeping and accounting software?
These days, most popular accounting software programs do both bookkeeping (transaction recording) and accounting (preparing financial reports, analyzing trends, etc.).
A couple examples are Quickbooks and Bench.
Quickbooks offers both bookkeeping assistance and accounting services. Their bookkeeping offerings consist of a software platform that you connect your accounts to, with either Live Assisted or Full-Service Bookkeeping. With Live Assisted, you'll be able to connect with a bookkeeper to ask questions and receive guidance on how to do your books yourself. Full-service bookkeeping will match you with a bookkeeper who does your books for you, using the Quickbooks platform.
Quickbooks' accounting services are similar, with the software platform offering ways to pull reports and analyze your data. You can get additional tracking and reporting features with the Quickbooks Online Advanced program.
Bench offers full bookkeeping services by live bookkeepers, along with our always-available software platform (so you can log in any time to see where your accounts stand). Schedule calls with a bookkeeper any time to ask questions or get clarification, receive one-on-one support, and access powerful reporting tools so you can keep a close eye on your business's big-picture financial health. Bench also offers tax advisory and filing services.
The bottom line
Organized financial records and properly balanced finances produced by the bookkeeper, coupled with smart financial strategy and accurate tax filing by the accountant, contribute directly to the long-term success of every business.
Some business owners learn to manage their finances on their own, while others opt to hire a professional so that they can focus on the parts of their business that they really love. Whichever option you choose, investing—whether it be time or money—into your business financials will only help your business grow.
