When people think about the differences between bookkeeping and accounting, they often have difficulty distinguishing the two. The objectives of bookkeepers and accountants are similar, but they provide assistance to your company at different points during the financial cycle.
Essentially, bookkeeping is the process of recording financial transactions in a transactional and administrative manner. Accounting data provides you with insight into the financial health of your company in a more subjective way.
Bookkeeping is important
A business’ bookkeeping is the process of collecting financial data and recording daily transactions.
Records financial transactions • Posts debits and credits • Produces invoices • Prepares financial statements (balance sheet, cash flow statement, and income statement) • Maintains and balances subsidiary accounts, general ledgers, and historical accounts
Maintaining a general ledger is an important part of bookkeeping. A general ledger is a basic document used by bookkeepers to record the income and expenses received from sales. This is called posting. Increasing sales require more frequent updates to the ledger. In addition to specialized software, you can also use a spreadsheet or just a piece of lined paper to create a ledger.
The complexity of an accounting system is usually determined by the size of the company and the volume of daily, weekly, and monthly transactions. Documentation of your company’s sales and purchases is required in the ledger, and some transactions require supporting documents. For more information, visit the IRS website.
The role of accounting in society
Accounting is the process of creating financial models by analyzing financial data obtained by bookkeepers and business owners.
Unlike the largely transactional bookkeeping process, the accounting procedure is more subjective.
- preparing adjusting entries (recording expenses that have occurred but have not yet been entered in the accounting system) • reviewing company financial statements • analyzing costs of operations • preparing income tax returns • helping business owners understand the impact of financial decisions
Accountants analyze financial data to assist in making business decisions. As a result, you’ll understand the true profitability and cash flow of your company. Accounting uses data from the general ledger to reveal a company’s overall picture and trajectory. Business owners frequently seek the assistance of accountants for tax planning, financial analysis, and tax filing.
What is the difference between an accountant and a bookkeeper?
Occasionally, bookkeepers and accountants do similar work, but their skills are different. A bookkeeper’s main responsibility is to keep track of transactions and keep you organized financially, whereas accountants provide consulting, analysis, and tax advice.
Qualifications for bookkeeping
It’s not required that bookkeepers have formal education. In order to be successful, bookkeepers must be meticulous with their work and knowledgeable about important financial matters. Generally, either an accountant or the owner of the company whose books the bookkeeper is keeping supervises the bookkeeper’s work. Therefore, a bookkeeper cannot claim to be an accountant
Qualifications for accountants
Accounting bachelor’s degrees are typically required for accountants. Those without an accounting degree often consider finance degrees to be suitable substitutes.
Accounting professionals can obtain further professional certifications, unlike bookkeepers. Certified Public Accountants (CPAs), one of the most prestigious accounting credentials, can earn the title with enough experience and education. To become a CPA, an accountant must pass the Uniform Certified Public Accountant examination and have professional accounting experience. Part of the cost of hiring an accountant depends on his or her certifications.