Accounting Vs Bookkeeping: A Quick Guide For Business Owners
Accounting and bookkeeping; both of these functions are extremely important for the survival of a business. Bookkeeping is responsible for the recording of financial transactions whereas accounting will interpret, analyze, and summarize the financial data.
There are some essential differences between bookkeeping and accounting that every business owner needs to know.
They both deal with the financial data of the company. Hiring for bookkeeping and accounting is a play of smart choice because you need to see the potential that it brings to your business. Make sure that you are using the bookkeepers and accountants in the right way.
Now let's understand the major difference between bookkeeping and accounting services.
Accounting Vs Bookkeeping: What's the Difference?
What is Accounting?
Accounting refers to recording the financial statements of a business and using those statements to generate reports for the business as well as the tax departments. A business can leverage from the services of accounting by doing tasks such as financial forecasting, audits, strategic planning, tax returns, and performance optimization.
The financial statements for business accounting are a brief summary of financial transactions over an accounting period, summarizing a company's operations, financial position, and cash flows. The reports which are made in accounting are useful in helping to make informed business decisions.
The basic qualification for accounting people is to have an undergraduate degree, specifically in the field of finance. If an accountant desires to work in a large-sized business, then the basic qualification they will be asked to be eligible for is to qualify as a CPA (Certified Public Accountant).
CPA has the ability to represent an organization to the IRS (Internal Revenue Services) and bring a high degree of expertise to the financial management of a company.
Both accounting and bookkeeping are the processes of accounting on a whole.
What is Bookkeeping?
Bookkeeping is essentially associated with identifying, measuring, and recording financial transactions.
Bookkeeping includes the daily updates of financial statements such as;
a) Receivable and payable account management which is also known as invoicing.
b) The financial relationship with the bank also called Bank Reconciliation.
c) Total expenditure and cash management.
d) Business financial statements for cash flow, income statement, and balance sheet.
e) The payroll transactions.
Accuracy is the main key component of bookkeeping. Bookkeepers in the modern-day world use online bookkeeping services such as QuickBooks for managing and tracking business transactions, hence speeding up the process and reducing any chances of human errors.
Accounting Vs Bookkeeping: Where does the difference lie?
● While there is no qualified degree of education required for bookkeepers, accountants require at least an undergraduate degree to become professionals in carrying out the accounting operations.
● The decisions which are made by the business management are taken on the basis of accounting rather than bookkeeping which at times can be very critical for the business operations.
● Bookkeeping records and tracks all financial transactions in a proper and systematic manner. Whereas the objective of accounting is to measure the financial situation of a business and inform the management of the risks and opportunities for the business.
● Bookkeepers have to be accurate and detail-oriented. Managing it with virtual bookkeeping services can avoid errors and make the process easier. Accountants apart from being minute with their eye need to have a strategic vision with some business awareness in order to lead a financial team of a business.
● Due to its complex and analytical functioning, accountants need specialized training in the field of accounting. Whereas bookkeepers do not require any special skill set.
● Bookkeepers are an easy process for hiring rather than accounting. They are cheaper to invest in as compared to accountants.
● Financial statements are not prepared as a part of bookkeeping services. These statements are the core functions for even simple accounting to be done in an organization.
Both bookkeeping and accounting are very old practices for businesses to keep track of their day to day earns and spends; managing the financial assets of the business.
These operations have been transformed into the digital processes with the help of tools and platforms such as QuickBooks which reduces human error, increases efficiency, and provides accuracy with large sums of money.