What Are The Differences Between Accounting & Bookkeeping?

As a small business owner, staying on top of your finances is important. That’s why knowing the distinctions between bookkeeping and accounting is essential. Both play pivotal roles in managing your finances and making informed decisions. In this blog, we’ll look into the variances of bookkeeping vs accounting, empowering you to allocate your resources effectively. Let us demystify these key aspects of financial management for your business.

What Exactly is Bookkeeping?

Bookkeeping is like a detailed diary of your business’s finances. It’s all about recording every single money move, from sales to expenses. This task is super important because it keeps everything organized and accurate. Bookkeeping covers things like managing what’s owed to you and what you owe to others, and handling payroll. It’s the foundation of your financial records and often overlaps with accounting.

What Exactly is Accounting?

Accounting takes all that data from bookkeeping and turns it into useful insights. It’s like translating the diary into a story that tells you how well your business is doing. Accounting involves creating and studying financial reports, dealing with taxes, and giving advice on money matters. It’s the big-picture stuff that helps you understand the health of your business and plan for the future.

Bookkeeping VS Accounting – Key Differences

Let’s begin by distinguishing between bookkeeping and accounting, essential aspects of any business. Assessing your company’s financial standing and growth expectations is crucial in determining the required services. Although there may be some overlap, there are clear differences between bookkeeping and accounting, in the table below:

‍

Table

‍

Small businesses benefit from distinguishing between bookkeeping and accounting to decide on the appropriate level of support tailored to their specific needs.

Typical Responsibilities in Bookkeeping

Apart from daily financial tracking, bookkeepers oversee the following tasks:

• Handling employee payroll
• Monitoring invoices from vendors, contractors, etc.
• Managing bill payments

The bookkeeper should possess the ability to address inquiries regarding daily finances and payment statuses.

Typical Responsibilities in Accounting

Conversely, accountants utilize financial reports provided by the bookkeeper to conduct various analytical tasks:

• Budget oversight and adjustments
• Handling tax filing and returns
• Analyzing and guiding business operations

Accountants play a significant role in ensuring the financial well-being of a business. Should they observe expenses exceeding or falling below budget, they can investigate the underlying causes and offer recommendations for resolution.

Advantages of Accountants And Bookkeepers

Here we have a few advantages of accountants and bookkeepers:

Advantages of an Accountant

While hiring an accountant may incur higher costs than hiring a bookkeeper, it brings several advantages:

• Tax Preparation And Filing: Professional accountants are crucial for managing a business’s tax returns efficiently, ensuring compliance, and meeting deadlines to alleviate tax concerns.
• Strategic Guidance: Accountants conduct comprehensive reviews of a business’s accounts and provide strategic advice, such as identifying revenue opportunities and potential cost savings, to propel the business forward.

Legal And Regulatory Compliance Support: With their expertise, accountants assist businesses in handling tax audits and navigating financial legal matters, ensuring compliance with regulations.

Advantages of a Bookkeeper

A bookkeeper offers several key benefits to a small business:

• Organization: One of the greatest advantages of having a bookkeeper is improved organization. Well-organized income and expense records simplify resource review for business owners and accountants, aiding in budget creation.
• Attention To Detail: By maintaining accurate records, bookkeepers enable accountants to prepare tax returns with fewer errors or omissions, potentially saving costs.
• Cost-Effectiveness: Bookkeepers typically offer their services at lower fees compared to accountants. The actual cost varies depending on the business’s filing and documentation needs.

Similarities between Accounting and Bookkeeping

Accounting and bookkeeping may appear similar as both involve handling financial data, require an understanding of accounting principles, and share the objective of enhancing a business’s financial standing. Furthermore, in smaller companies, a bookkeeper’s tasks may encompass responsibilities typically performed by an accountant in larger firms, such as compiling financial statements. As accounting software advances, automation enables companies to streamline processes, allowing bookkeepers more time to analyze data and rectify discrepancies, further blurring the distinctions between the two roles.

Bottom Line

Properly managed money records and balanced finances, handled by a bookkeeper, combined with smart financial planning and accurate tax filing by an accountant, directly contribute to a business’s long-term success. Some handle finances solo, while others hire pros to focus on their passions. Whatever you choose, investing in your business’s financials, whether time or money, just promotes growth. You can hire our expert Bookkeepers and accountants. For more info or to hire our experts visit AquiferCFO.

‍