Bookkeeping and accounting are both key parts of ensuring a business's financial health. These functions help businesses of all sizes properly track revenues, expenses, assets, and liabilities, and ensure this information is properly reported through the company’s financial statements and tax returns.
Bookkeeping and accounting are also key tools in how to manage your money as a business owner. Understanding what is involved with each function can help small business owners decide what to keep in-house and what to outsource as they seek to manage their business’s finances.
Here’s a quick comparison of bookkeeping vs. accounting to help you understand how each works.
What does a bookkeeper do?
Although these duties may vary a bit from company to company, a bookkeeper is generally responsible for tracking, maintaining, and recording various financial transactions within the business.
These transactions will run the gamut and impact both the company’s income statement and its balance sheet. Examples of transactions a bookkeeper might be responsible for recording and maintaining include:
- Tracking and recording business income and daily transactions. This typically includes payments received from customers as well as amounts paid for various expenses of the business, including payroll.
- Posting these transactions into the company’s general ledger, which is a running record of the business’s financial transactions that’s used to generate the company’s financial statements.
- Reconciling and adjusting entries made into the accounting system and reconciling amounts in the general ledger accounts in order to maintain accurate balances.
- Monitoring any variances from the company’s operating budget for either revenues or expenses.
Depending on the size of the company, a bookkeeper may have some level of responsibilities for the company’s accounts payable, accounts receivable, or possibly the payroll function. Generally, these are all separate functions in a larger business.
There are generally no specific credentials required for bookkeepers. Some may have a degree in accounting, others may or may not have a bachelor’s degree. However, there is a certification for bookkeepers, the Certified Public Bookkeeper. Whether this is needed may be based on a preference by a particular company.
What does an accountant do?
An accountant generally works for a company or as an independent accountant serving the needs of business clients as well as individual taxpayers.
Accountants may perform a number of functions for companies as well as clients if they own or work for an accounting firm. An accountant’s duties might include:
- Preparing a company’s financial reports, including an income statement, balance sheet, and cash flow statements.
- Preparing taxes in line with applicable tax rules and laws.
- Analyzing the company’s financial data and leading business planning, forecasting, and budgeting efforts.
- Ensuring the accuracy of financial statements and financial records, including their compliance with applicable accounting rules and laws.
- Evaluating financial systems and processes to ensure the most timely and efficient flow of financial information and to streamline the accounting process at companies.
Typically, accountants have college degrees and certifications. The main certification for an accountant is the CPA of Certified Public Accountant designation. All CPAs are accountants by education and training, but not all accountants are CPAs. There are educational requirements to sit for the CPA exam and continuing education requirements for accounting professionals that obtain the designation.
Bookkeeping vs. accounting: 3 key differences
Bookkeeping and accounting are closely related in many areas and may even overlap at times. Although they are two separate functions, in some situations, the same individual may do some of both functions. Unlike with some areas of medicine or law, there are not always clear lines of responsibility between the two functions.
That said, here are some key differences between bookkeeping and accounting:
Generally, but not always, an accountant will be more credentialed than a bookkeeper. An accountant will likely have an educational background in accounting or a related field. They may have the CPA credential, especially if they work at or run an accounting firm that prepares tax returns and does financial returns for business clients.
Someone working as a bookkeeper may be less likely to have the CPA credential and may or may not have a degree in accounting or a related discipline.
Generally, the main responsibilities of bookkeepers include data entry and ensuring that various business transactions are included correctly in a company’s accounting system.
Often, bookkeepers work with popular online small business accounting software like QuickBooks or others that generate a company’s financial statements. In other words, bookkeeping generally provides the inputs into an accounting system that allows accountants to take things to the next level.
Accounting is more about generating financial statements, making accounting and financial decisions, completing tax returns, budgeting, and financial planning for a company. Accountants often take the inputs generated by bookkeepers and use those inputs in the work they do.
3. Cost of services
Bookkeeping services will typically cost less than those of an accountant. Bookkeeping may be done by someone internal in the company or an outside firm. These services may even be something offered by an accounting firm that serves small businesses.
Accounting services such as the preparation of financial statements, tax preparation, as well as CFO services that might be offered by an outside accounting firm will generally carry a higher price tag than bookkeeping services.
Bookkeeping vs. accounting: Which type of help do you need?
If you own a small business or you are a solopreneur, you’ll likely need some type of accounting and/or bookkeeping support to help you build a successful business.
If you decide to get help from a bookkeeper for your small business needs, they likely enter and update transactions into your accounting system. You might then work with an outside CPA firm to review the data in your bookkeeping system and use this information to generate your company’s financial statements and your business tax returns.
If you are solo or your business is very small, you might use an outside accounting firm to do both your bookkeeping and accounting tasks. Depending on the nature of your business, the firm may ask for your business bank statements and use that info to update your bookkeeping software, like QuickBooks.
Alternatively, you might also decide to manage your finances in-house. In this case, the right financial tools can help you streamline and simplify the process of tracking and management.
For instance, if you decided to do your taxes on your own, you might benefit from using one of the best tax software programs. Or, if you’re looking to streamline your expense tracking, you might consider applying for one of the best business credit cards. The right credit card could also be useful if you want to organize your expenses for a bookkeeper in the future.
Do accountants do bookkeeping?
Accountants can and sometimes do perform bookkeeping tasks. For example, this might occur with an accountant employed by a smaller company. They might do a bit of everything if the company is not yet in a position to hire a full accounting and bookkeeping staff.
An outside accountant or CPA might also perform some bookkeeping functions for solopreneurs or small business clients. It is more likely that an accountant might do some bookkeeping work than the reverse. There are a number of accounting and tax duties that bookkeepers might not be qualified to perform.
What's the difference between bookkeeping and accounting?
Typically, bookkeepers record the various transactions that a business incurs in the course of its normal operations. Accountants take that information and use it to generate the company’s financial statements and tax returns, and to help manage business decisions.
Accounting and bookkeeping services can be essential in managing your business’s finances, regardless of the size of your company or the type of business you run. Both can have a big influence on the success of your business.
It's important for business owners to determine whether they want these functions to be part of their company or to outsource these functions to an accounting firm. The answer may be some of both, based on your budget and business needs.