Bookkeeping and accounting are both essential business processes. Both are important
methods of tracking your business finances, monitoring performance, and detecting red
flags early on. They also both involve a lot of numbers, spreadsheets, and accounting
principles. It’s easy to get them confused as they’re very similar in practice. However, there
are key differences between bookkeeping and accounting that you should know about
before hiring an accountant or bookkeeper. Accounting is a broader profession;
bookkeeping is just one aspect of it. Accountants keep records, analyze financial
transactions and report those transactions to third parties (such as tax agencies). On the
other hand, bookkeepers track transactions and help accountants manage financial data by
assigning standard codes for assets and liabilities.
Differences in process
Accountants start by assessing your current situation and identifying the areas you could
improve or optimize. They identify the key metrics you need to track and analyze the
financial data you’ve accumulated over the past year. Accountants help you make better
decisions in the future based on your current financial status and trends in your industry.
Bookkeepers start by tracking your current financial transactions. They identify the
necessary code for each transaction and ensure that your financial records are properly
organized and easily accessible. Bookkeepers also reconcile your bank statements and
ensure accurate cash flow reports.
Record-keeping vs. measurement
Accountants measure and evaluate your business performance. They look at a number of
important financial data points and metrics, including your sales, expenses, cash flow, and
financial ratios (such as profit margin and debt-to-equity ratio). Bookkeepers record the
financial transactions that happen in your business day-to-day. This includes everything
from purchases to sales and payroll. Bookkeepers also assign a standard code to each type
of transaction. This allows you to organize and search for data more easily. Accounting
records are much more extensive than those kept by bookkeepers.
Differences in tracking methods
Accountants generally deal with larger-scale transactions, such as the acquisition or sale of
property or goods, that require careful record-keeping. Bookkeepers track smaller-scale
financial transactions, such as payments and expenses. Accountants track inventory and
assets that your business owns. They also track your liabilities and debts you owe to others.
Bookkeepers track inventory and expenses that your business pays out. They track your
assets and liabilities as well, but on a much smaller scale.
Differences in what’s included
Accounting is a broader profession; bookkeeping is just one aspect of it. Accountants keep
records, analyze financial transactions and report those transactions to third parties (such
as tax agencies). On the other hand, bookkeepers track transactions and help accountants
manage financial data by assigning standard codes for assets and liabilities. They also
reconcile your bank statements and ensure accurate cash flow reports. Bookkeeping is a
necessary part of accounting, but there are many other important aspects of accounting that
bookkeeping does not include.
Conclusion
Bookkeeping and accounting are both important functions for most businesses. While both
deal with numbers and record-keeping, the fields are separate professions with different
skill requirements. The main difference between the two is that accounting involves a
greater variety of information and tracking methods. While accounting professionals handle
the records needed for third parties like banks or the government, bookkeepers primarily
deal with the financial transactions of day-to-day operations and the tracking of those
expenses.
