Bookkeeping vs Accounting: What's the Difference?

To the layman, the role and tasks of a bookkeeper and an accountant may seem pretty much the same. And this is understandable considering both accounting and bookkeeping deal with financial data, require some basic knowledge of accounting and the creation of reports based on financial transactions. That being said, bookkeeping and accounting are fundamentally different, each with unique roles that in the end are largely complementary. Read on to find out the key differences and similarities of bookkeeping versus accounting.

Bookkeeping vs. Accounting: An Overview

Bookkeeping is focused more on objective financial tasks, such as recording financial transactions and administration of finances. Accounting, on the other hand, is more subjective, providing you with insights into your business based on the information recorded by bookkeepers. Both bookkeeping and accounting are of central importance for any business organization, small or large. But one is more centered on recording and while the other is focused on analyzing, interpreting and reporting on financial data. Read: The 20 Best Businesses to Start

What Is Bookkeeping?

The main focus of bookkeeping is recording day-to-day business transactions in a consistent manner. Transaction recording lays down the foundation for the final accounting process. It’s one of the critical components of establishing a financially successful business. Some of the principal tasks of bookkeeping include:

Recording financial transactions
Managing payroll
Posting debits and credits
Creating invoices and making payments on your behalf
Tracking accounts payable
Maintaining general ledgers

The last point, maintaining a general ledger, is arguably the most important component of bookkeeping. The general ledger is a document that represents the record-keeping system for a business’s financial data. This provides a record of each financial transaction that occurs during the life of a company. A bookkeeper records the amounts from sale and expense receipts, which is referred to as posting. The more sales a business makes, the more frequently the ledger is posted. See: How to Budget for Business Expansion

What Is Accounting?

The role of an accountant involves a far greater degree of subjectivity than the role of a bookkeeper. Accounting is a complex process that takes financial information recorded by a bookkeeper or business owner and produces analysis, financial models and more. Accounting is composed of the following responsibilities:

Analysis of financial transactions
Preparation of company financial statements and business records
Preparation of adjusting entries
Interpretation of financial data
Summarization of economic performance
Completing income tax returns
Help the business owner understand the impact of financial decisions

The process of accounting produces reports that bring crucial financial indicators together. For example, preparing financial statements includes balance sheets, income statements and cash flow statements, and helps you understand the overall financial health of your business. This results in a better view of your company’s real profitability, as well as the dynamics of cash flow in your business. Where bookkeeping is very much focused on objective transactions, accounting harnesses the information from your company’s ledger and turns them into statements that show the bigger picture of your business. And, of course, accounting involves a great deal of work in business taxes and filings .

What Is the Difference Between Bookkeeping and Accounting?

It’s not uncommon for bookkeepers and accountants to do the same work. However, in most cases, a bookkeeper’s first job is to record transactions and keep your finances organized. Meanwhile, accountants are more involved in providing consultation and analysis of your financials, as well as being more qualified to advise on taxes and related issues for your company. Bookkeeping is very objective, while accounting involves a great amount of subjectivity. Usually, bookkeepers are not required to have any formal education or certification to do bookkeeping. In terms of personal qualities, bookkeepers should be detail-oriented and focused on accuracy, as well as having sound knowledge about important financial subjects. It is very common for a bookkeeper’s work to be overseen by an accountant or the small business owner whose books they are maintaining. The key takeaway here is that the bookkeeper sets up the financials for the accountant who then develops the material into analysis, interpretation and actionable solutions. To be an accountant, there are some formal education requirements. Typically, you must have a bachelor’s degree in accounting or a related financial field. Where bookkeepers don’t need certifications, accountants are eligible to attain professional certifications, most notably, the title of Certified Public Accountant (CPA). This is one of the most common types of accounting designations and, in order to become one, an accountant has to pass the Uniform Certified Public Accountant exam, as well as have experience as a professional accountant.

Bookkeeping vs. Accounting At a Glance

Here is a summary of the principal tasks involved in bookkeeping and accounting, as well as the key differences between them:

Bookkeeping

Accounting

Recording all financial transactions, such as sales and expenses, a business makes

Preparing financial statements, including balance sheets, income statements and cash flow statements, for a business

Posting debits and credits

Analysis of financial transactions

Creating and sending invoices

Completing income tax returns

Tracking accounts payable

Preparing and adjusting entries

Maintaining the general ledger

Interpretation of financial data and strategy

Managing payroll

Tax strategy and tax planning

Recordkeeping

Financial modeling and forecasting

Learn: What Is a Fiscal Year?

Impact of Technology on Bookkeeping and Accounting

Nowadays, with the wide availability of affordable and convenient accounting software , bookkeepers no longer have to manually record everything. In fact, accounting software is eroding much of the work that bookkeepers were previously occupied with. All the transactions, invoicing and recordkeeping that used to be done manually by bookkeepers are now done automatically and rapidly by software. But technology isn’t just affecting bookkeeping in a one-sided manner. Technological developments have been blurring the line between accounting and bookkeeping. On the one hand, accounting software is taking on tasks normally performed by bookkeepers. On the other hand, accounting software is also steadily absorbing some accounting tasks into the bookkeeping process. A good example of this is that both accounting and bookkeeping software is typically capable of generating financial statements, a major component of the job of an accountant. However, technology should not be seen solely in a negative light. Although some important tasks can be managed by software now, this opens up bookkeepers and accountants to more opportunities. Since manual grunt work can now be performed by accounting software, bookkeepers and accountants can focus their energy elsewhere to help the business in a far more effective way. New technologies don’t simply wipe out jobs. They bring new levels of efficiency and in this way, both bookkeepers and accountants can benefit from technological developments in their fields. Up Next: 9 Ways to Increase Business Profits

The Bottom Line

The roles of a bookkeeper and an accountant are fundamentally different, but they are closely related and, more importantly, complementary. Bookkeeping lays the financial foundation for an accountant to then use and develop for additional purposes. A bookkeeper performs the critical objective work of recording and maintaining financial documents, which can then be used by an accountant for the subjective tasks of analyzing, interpreting, summarizing and forecasting a business’s financials. Both jobs are crucial to the long-term success of any business venture. More From Seek

Business Loan Resources

Photo credit: This Is Me/Shutterstock.com

Did You Know?

We've funded over $400 million for small business owners since 2015

Get Funding Now