What is the difference between Bookkeeping and Accounting?

You would be hard-pressed to find someone who can articulate the difference between bookkeeping and accounting. While both the professions assimilate common objectives, they support in different stages of the financial cycle of your business. To an untrained eye bookkeeping and accounting may appear the same. The reason is both professions deal with financial data, require basic accounting knowledge, and generate reports of financial transactions. However, both these processes are inherently dissimilar and have their own sets of benefits to the business.

In this article, we will explore the functional differences between bookkeeping and accounting and how the distinctive nature of both overlap each other.

To help you better understand the difference between bookkeeping and accounting let’s see how the dictionary defines them.

Definition of Bookkeeping

Bookkeeping is the consistent recording, storing, and retrieving of daily financial transactions of the business. It ensures that the records of the financial transactions are accurate, up-to-date, and comprehensive.

Definition of Accounting

Accounting is a process by which the business communicates its data with others. Therefore, accounting is often termed as a universal language of business. Accounting involves a series of steps– from initially recording the information to converting it into financial statements. To do this business’s financials are recorded, summarized, analyzed, consulted, and reported on.

Duties of a Bookkeeper

Bookkeepers work to ensure that the financial data is timely and accurately entered and processed. They are integral to recording the day-to-day and monthly financial activities surrounding your business. Bookkeeping tasks mainly include:

• Categorize and record the financial transaction.
• Create customer invoices, collect payments, and follow up from customers.
• Process payroll and remit payroll deductions.
• Conduct bank and credit card reconciliations.
• Generate monthly and annual financial statements such as income statement, balance sheet, and cash flow statement. 
• Maintain general ledger and chart of accounts.
• Monitoring debt.
• Maintaining the annual budget.
• Assisting accountants at year-end closing, during tax season, reporting issues as they arise. 

Duties of an Accountant

Accounting comes with a broader set of responsibilities and refers to the process of financial reporting. Accountants analyze and interpret financial data to report the financial state and performance of the business to business leaders to assist them in making informed business decisions. Accounting tasks mainly comprise:

• Reviewing financial statements and account balances.
• Preparing adjusting entries.
• Perform financial analysis and financial planning.
• Complete annual tax returns and conduct tax planning.
• Creating financial forecasts.
• Aiding the business owners in evaluating different options and understanding the impact of financial decisions considering the various options. 
• Setting controls for preventing and detecting fraud or embezzlement of funds.
• Supervising bookkeeper’s work to ensure accurate and updated business records.

Credentials required for both the professions – Bookkeeping and Accounting

Bookkeeper credentials: Bookkeepers are not required to have any formal education. To be an expert in bookkeeping, one needs to be a stickler for accuracy and knowledge about key financial aspects.

Accountant credentials: To qualify for the title of accountant, generally an individual must have a bachelor’s degree in accounting. For those who don’t have a specific accounting degree in accounting, professional certifications are an equivalent substitute.

A Synergic Relationship – Bookkeeping and Accounting

The terms are often used interchangeably, there is a significant distinction between bookkeepers and accountants in terms of their roles when it comes to managing and leveraging financial data. As their names denote bookkeepers “keep” or manage the company’s financial books, while accountants “account” for or explain what is in financial books.

This implies that accountants and bookkeepers work in tandem to ensure the company’s finances are not only well-maintained, updated, and compliant but that they are being used to elevate the business performance.

Why you need both – Bookkeepers and Accountants

By now you must have understood that these roles are vastly different, but the two are highly interconnected. Without well-organized record-keeping by bookkeepers, accountants are unable to produce their analytical evaluations and interpretations. Likewise, bookkeepers depend on accountants to provide them with a clear idea of what information must be logged and design a structure that develops a mechanism of efficient record keeping. Bookkeepers record and categorize financial transactions, laying the groundwork for accountants to analyze the financial information.

Mostly, nowadays the bookkeepers also do accounting work so it is best to ask that one can do both or single job.

The best way to capitalize on the distinctive features of both bookkeeping and accounting is to recognize that each relies on the other in providing your business with a thorough set of financial skills and services.

Some small start-ups do learn to carry out some of these roles themselves. But when in doubt about your expertise to keep records organized and to direct financial strategy, you can never go wrong with a professional.

Get on the safe side, like hiring an accounting firm that can handle all of your work from nail to head. They will do the accounting and bookkeeping work will be done by them.

If you have any sort of accounting and bookkeeping requirements in Toronto, Mississauga, Oakville, and Hamilton we at Filing taxes provide reliable bookkeeping and accounting services for small to mid-sized businesses. Feel free to reach out to Filing Taxes at 416-479-8532? Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting firms and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.