When most people think about bookkeeping and accounting, they would be hard-pressed to describe the differences between each process. While bookkeepers and accountants share common goals, they support your business in different stages of the financial cycle.
The Function of Bookkeeping
Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to building a financially successful business.
Bookkeeping is comprised of:
Recording financial transactions
Posting debits and credits
Maintaining and balancing subsidiaries, general ledgers, and historical accounts
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. This is referred to as posting and the more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.
The complexity of a bookkeeping system often depends on the size of the business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The IRS lays out which business transactions require supporting documents on their website.
The Function of Accounting
Accounting is a high-level process that uses financial information compiled by a bookkeeper or business owner, and produces financial models using that information.
The process of accounting is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
Preparing company financial statements
Analyzing costs of operations
Completing income tax returns
Aiding the business owner in understanding the impact of financial decisions
The process of accounting provides reports that bring key financial indicators together. The result is a better understanding of actual profitability, and an awareness of cash flow in the business. Accounting turns the information from the ledger into statements that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, financial forecasting, and tax filing.
The Bookkeeper Role vs The Accountant Role
Understanding the difference between bookkeeping and accounting is empowering as a business owner, but it’s also important to understand the kinds of credentials accountants and bookkeepers have in order to determine how or when to use each. Read on for a look at what the roles of bookkeeper and accountant entail.
Typically, bookkeepers are required to have between two and four years of experience or an associate’s degree. To be successful in their work, bookkeepers need to be sticklers for accuracy, and knowledgeable about key financial topics. Usually, the bookkeeper’s work is overseen by either an accountant or the small business owner whose books they are doing.
To qualify for the title of accountant, generally an individual must have a bachelor’s degree in accounting. For those that don’t have a specific degree in accounting, finance degrees are often considered an adequate substitute.
Accountants, unlike bookkeepers, are also eligible to acquire additional professional certifications. For example, accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA), one of the most common types of accounting designations. To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a professional accountant.
Organized financial records and properly balanced finances produced by the bookkeeper, coupled with smart financial strategy and accurate tax filing by the accountant, contribute directly to the long-term success of every business.
Some business owners learn to manage their finances on their own, while others opt to hire a professional so that they can focus on the parts of their business that they really love. Whichever option you choose, investing—whether it is time or money—into your business financials will only help your business grow.
Call us today to discuss your immediate or future needs! Jodie Fish, Manager of the Bookkeeping company can be reached at email@example.com or feel free to call her at (480) 203-2100. We also offer tax solutions as well as payroll for officers of S-corps. If interested, please contact our tax department at firstname.lastname@example.org or 480-857-3048.