Last Updated: January 12, 2023
The bookkeeping vs accounting dilemma confuses even some business veterans.
While there’s a certain overlap, the two professions have distinct functions, and the respective experts provide vastly different services. The bookkeeper’s role is fully administrative, while the accountant’s consists of both administrative and advisory responsibilities.
But that’s just the most basic explanation and doesn’t really solve the bookkeeper vs accountant dispute.
Here’s a brief rundown to help you sharpen the blurred line between these two types of finance specialists!
What Is Bookkeeping?
The bookkeeping definition describes it as “the skill or occupation of maintaining accurate records of financial transactions”. In layman’s terms, keeping tabs on all the money a company or an individual spends and receives is considered bookkeeping.
Single-file and Double-file (Single- and Double-entry) Bookkeeping
We can’t define bookkeeping without mentioning the pivotal division on single- and double-entry bookkeeping.
Single-entry bookkeeping is fairly simple, and it can be brought down to what laymen refer to as budgeting. You take all your income and subtract from it all the expenses. What you’re left with is your balance. Single-entry bookkeeping usually takes place in the cash book. Here, you need to include information like the transaction date, value and description, as well as the current balance.
Double-entry bookkeeping, on the other hand, adds more layers to the bookkeeping duties. According to the double-entry bookkeeping system, the client’s assets are equal to the owner’s liabilities and equity.
Unlike single-entry bookkeeping records that are entered into cash books, double-entry bookkeeping takes place in journals, ledgers, as well as through trial balance and financial statements.
Types of bookkeepers
There are three major types of bookkeepers according to their field of expertise, services provision, and bookkeeper duties:
- General bookkeepers keep a record of financial transactions for individuals or companies that entrusted them with these tasks. They often use specialized software and are usually familiar in-depth with the financial standings of their clients.
- Full-charge bookkeepers deal with everything that general bookkeepers do, but they also handle the payroll and prepare financial statements. More often than not, they’re hired in-house and have taken a couple of accounting courses.
- Certified bookkeepers are accredited professionals with relevant experience in the field. They are, therefore, capable of taking even the most complex bookkeeper duties and responsibilities. The chances are that a certified bookkeeper will add a title CB next to their name.
Do I need a bookkeeper?
Many people do their own bookkeeping. But is this really a viable solution, and when’s the time to hire a professional instead? Let’s try to sum it all up.
Categorizing transactions and sorting payments can take too much time and energy — both critical business resources. Moreover, with the DIY approach, you may soon find yourself behind on collecting your account receivables, sending invoices and even sorting your bills and receipts. As your business starts growing, you will have too many accounts to manage and more complex situations to handle.
Simply put, if you’re spending hours fulfilling the duties of a bookkeeper every single day, there’s no doubt the time is right for you to tap into professional services.
Yet, if hiring a bookkeeper is not economically feasible for you or your business, you can handle your financial transactions on your own. If so, don’t take the task lightly and invest some time in preparation.
Here are several essential tips:
- Start from day one of the tracked period. Spending 20 minutes every day on bookkeeping tasks is much more effective than trying to cram it all on a later date.
- Make your own system that fits your needs.
- Watch a free HMRC webinar or, better yet, pay for a brief bookkeeping course.
- If you’re also managing payroll on your own, this task would be a lot easier with a payroll software.
- Most importantly, you need to budget for tax, and you need to make sure that you claim for everything.
What Is Accounting?
Accounting is more than just recording and managing financial transactions. The process also involves summarizing, analyzing, and reporting money flows. The produced statements are sent to oversight agencies, tax collection entities, and special regulators in some cases. This is the simplest possible definition of accounting.
Keep in mind that bookkeeping is one of the accounting processes. This means that every bookkeeping action falls under the umbrella term of accounting. But certain accounting tasks are outside the bookkeeping scope, making for the difference between bookkeeping and accounting.
Types of accounting
Depending on the tasks and business field involved, there are seven major types of accounting (with myriad minor denominations):
- Financial accounting
- Public accounting
- Government accounting
- Forensic accounting
- Management accounting
- Tax accounting
- Internal auditing
There is also another, more general way to define the purpose of an accountant. According to this simplified division, there are:
- Cost accounting
- Managerial accounting
- Finance accounting
Note that these are all relevant within the same company. In other words, enterprises of all sizes and industries need these services. This especially goes for small businesses.
The difference between CPAs and accountants
Another perplexity in this field is caused by the CPA vs accountant dilemma. The abbreviation CPA (certified public accountant) already has the word accountant in it, so what’s the difference?
This again has to do something with umbrella terms and general terms. You see, while all CPAs are accountants, not all accountants are CPAs. There are four differences between a CPA and a general accountant. These are:
- Fiduciary responsibility
- Taxing and regulations
- State requirements and code of ethics
You see, CPAs need to pass rigorous tests and get a license in the state where they intend to practice. Also, CPAs are considered fiduciaries with a legal duty to work in the best interest of their clients. When discussing the CPA vs accountant and CPA vs bookkeeper pairs, it’s easy to argue that this is the case in all scenarios. But for CPAs, this is a legal requirement rather than just a typical manner.
That’s not to say that accountants can’t be held legally responsible for their actions. But CPAs have a strict code of ethics that is proscribed by the standards of the profession. The fiduciary relationship with their clients is something that they have to abide by at all times.
What is a staff accountant?
When a single company has a whole accounting department, every team member usually has their own role and rank. While the senior and junior accounting positions are self-explanatory, those whose rank is in between are referred to as staff accountants.
In other words, the staff accountant vs accountant difference is like that between a captain and a commander. Staff accountants usually have a bachelor’s degree, but they are not necessarily CPAs.
Why do you need an accountant?
Businesses of all sizes rely on financial statements like the regular income statement, balance sheet, and cash flow report. They require both bookkeeping and accounting services. Other than that, accountants control your tax obligations, identify savings more efficiently than you ever could, and generally save you time and effort.
A failure to claim valid expenses will ensure that you miss out on some important tax breaks. It will become a lot easier for an unpaid account to remain undetected (even with a reminder and a notification system).
Most importantly, underestimating your taxes can get you into some legal trouble. Being late when filing for tax returns and similar compliance paperwork may result in fines. It’s the purpose of an accountant to save you and your enterprise from all this.
What Is the Difference Between Bookkeeping and Accounting?
To better understand the difference between a bookkeeper and an accountant, it’s important to compare the tasks most commonly performed by these professionals.
|Recording and categorizing transactions||Preparing accounts and tax returns|
|Payment processing||Monitoring spending and budget|
|Daily banking activity processing||Keeping account books and systems updated|
|Producing financial reports||Financial forecasting and risk analysis|
|Reconciling reports and third-party reports (bank statements)||Auditing and analyzing financial performance|
Through this brief list, it’s already quite evident that bookkeeping vs accounting has a much deeper gap in skill and aptitude required for the job. Accountants are required to possess specific analytical skills to process and interpret the information at hand.
Now, let’s take a more detailed look at some of these tasks. This may help you determine whether you need a professional to take care of them.
Recording and categorizing transactions
Recording financial transactions and categorizing them is a relatively easy task. You can have a cashbook or a ledger to note them down right as they happen. To make it all even simpler to pull off, you can look for some of the top online bookkeeping services. Such tools can automate the entire process and overall help with various bookkeeper responsibilities.
In the past, this task was far more complex. Now, the majority of payment processing takes place in a digital environment. This makes the bookkeeper’s job much simpler, with every single payment leaving a digital footprint. In theory, this means that it’s possible to find a record of a transaction even if you haven’t marked it down right away.
It’s the role of a bookkeeper to keep track of the following:
- Daily banking activities
- Account checking
- Savings account management
- Debit and credit cards management
- Insurance tracking
- Wealth management
While it may sound quite simple, what happens when you have more than one account, credit card, insurance type, etc.? This is why a professional bookkeeper is often a necessity.
Producing financial reports
Financial reports produced by bookkeepers consist of a balance sheet, income sheet, and a cash flow statement. A balance sheet is the simplest since it shows merely the assets, liabilities, and shareholder equity during a specific time period. It’s the first among many responsibilities of a bookkeeper. An income sheet keeps track of expenses and income during a particular period, while a statement of cash flow shows all the money inflow and outflow for a company/individual.
Reconciling reports and third-party reports
When a transaction runs through a third party, bank reconciliation is not as simple and straightforward. It usually requires specialized training, as well as enrollment with specific online merchant services. Ideally, this should be done on a daily basis. One of the many bookkeeper roles and responsibilities in this regard is to prepare a departmental deposit form.
Preparing accounts and tax returns
Preparing tax returns, which most often involves income tax returns, is referred to as tax preparation. It involves calculating tax liability, scheduling tax payments, and even requesting refunds in the case of a tax overpayment. While it depends on the region, in most countries, tax returns are filled once per year as an annual report. Reportable income like wages, interest, dividends, and capital gain needs to be listed. This is one of the most important accounting tasks and a major difference between the accountant and bookkeeper roles.
Monitoring spending and budget
Once you stop being the only one with access to your company/personal finances, you will have to start monitoring your budget and spending. This way, you will be able to notice if there’s any suspicious activity. This could either be a mistake or a malicious intention by a third party (even one you trust). Sometimes, you just need an advisor to provide you with the necessary financial insights. Naturally, to define accountant, we use the term financial advisor.
Keeping account books and systems updated
Keeping books balanced involves a lot of work, sometimes even on a daily basis. Occasionally, the financial system itself needs an update. This requires the level of specialist skill and in-depth understanding that a layman may not possess. While this task becomes simpler with optimized accounting software, it’s still great to have a professional on board.
Financial forecasting and risk analysis
While both bookkeeping and accounting specialists can provide you with administrative support, only the latter are capable of financial forecasting and risk analysis. Setting accurate result expectations can prepare your company for the future, which is why an accountant is essential to the business development of any enterprise.
Auditing and analyzing financial performance
The evaluation of financial transactions and the financial statement analysis of a business is the task commonly referred to as audit. This is essential when there’s a need to present the public or the shareholders with your accounts. Based on this, a competent accountant can perform a thorough analysis of an enterprise’s financial performance. When it comes to audit, there shouldn’t be a bookkeeping vs accounting dilemma, as this task goes beyond the scope of a bookkeeper.
Bookkeeping requires patience, dedication, and consistency to record and categorize every transaction. Accountants, on the other hand, deal with complex financial and tax-related processes, analyze finances of a business/individual, and often play an advisory role.
And while accounting and bookkeeping services are both essential in today’s financial life, the difference between them is quite significant and worth knowing.
In a nutshell, the difference between an accountant and a CPA is the certificate. To become a CPA, an accountant has to undergo a particular procedure and pass the state-regulated test. Other than this, CPAs also have a fiduciary responsibility and have to fulfil specific state requirements. And while every CPA is also an accountant, not every accountant is a CPA.
A bookkeeper cannot call themselves and an accountant. Technically speaking, while an accountant can perform numerous bookkeeper duties, a bookkeeper doesn’t do the work of an accountant.
Depending on the size and scope of your business, it might be ideal to have a bookkeeper or an accountant (or both) employed in some capacity. Bookkeepers focus on transaction records, while accountants specialize in tasks like cash flow management and tax preparation. A larger accounting department typically consists of several bookkeepers and an accountant to supervise them and handle complex situations.
Yes, a bookkeeper can prepare financial statements like a profit and loss statement or a balance sheet. Cash flow statements also fall under their jurisdiction, which makes them indispensable for enterprises of all sizes. Still, since accountants are also responsible for financial statements, this might not be the best argument to settle the bookkeeping vs accounting dilemma.