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What’s the Difference Between Bookkeeping and Accounting?

October 17, 2014

Difference Between Bookkeeping and Accounting

The terms bookkeeping and accounting often get thrown around interchangeably, but there are some important differences between the two. If you’re considering hiring someone to help with the financial side of your business, this guide will help you understand the distinctions between them, what services they offer and when your company might need one or the other.

Understanding Bookkeeping

The term “bookkeeper” is pretty literal: it is the person who keeps the books, or in other words, retains documentation of all financial transactions of the company in chronological order. Bookkeeping is a critical subset of accounting, which refers to the process of gathering, organizing, storing and accessing the financial information of a company. This financial information is used to help facilitate the daily operations of the business, and to prepare financial statements, tax returns, and internal reports to managers.

Think of bookkeeping as the financial information infrastructure of the company. Bookkeepers may obtain certification through the AIPB (American Institute of Professional Bookkeepers), but someone can still practice bookkeeping without certification. Certified or not, it’s important to ask for a bookkeeper’s references and proof of Errors and Omissions Insurance.

General bookkeeping tasks include:

  • Issuing invoices to customers
  • Recording invoices from suppliers
  • Recording cash receipts from customers
  • Paying suppliers
  • Recording changes in inventory
  • Processing payroll
  • Processing petty cash transactions

Understanding Accounting

Accounting involves analyzing, verifying and reporting on the recorded financial information that is documented by a bookkeeper. Accountants design the bookkeeping system, establish the controls to make sure it is working well, and measure the financial effects of economic activity. Accountants design internal controls that are relied upon to detect and deter theft, embezzlement, fraud and other dishonest behavior. Accountants prepare reports based on accumulated information to create financial statements, tax returns as well as various confidential reports for managers. The accountant also decides how to measure sales revenue and expenses, in order to determine the profit or loss for the period.

Accountants can receive certification from the AICPA (American Institute of Certified Public Accountants) and to qualify for the title of “accountant” one generally must have a bachelor’s degree in accounting or in some cases finance degrees can serve as a substitute.

General accounting duties include:

  • Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
  • Analyzing costs of operations
  • Preparing company financial statements
  • Completing income tax returns
  • Aiding the business owner in understanding the impact of financial decisions

Bookkeepers and Accountants

Bookkeepers and accountants often work in tandem, and deciding if you need both depends upon the size of your business and your financial needs. In some cases, smaller companies may have a bookkeeper on staff and then hire an accountant periodically to help with analyzing financial operations at specific times.

Filed Under: Accounting, Bookkeeping

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