Understand the Differences Between Bookkeeping and Accounting
Accounting and bookkeeping are not interchangeable terms, unlike what many businesses think. These are two essential steps in the process of financial management. Bookkeeping is about recording the data and accounting is about compiling the reports of the said data.
In simple terms, bookkeeping is literally about keeping the book up to date with transactions, incomings and outgoings, any exchange of money, and income and expenses. Accounting refers to the laying down of the accounts of the recorded income or finances. Meaning, it analyzes, summarizes and reports the data collected through bookkeeping.
This article aims to make the difference between bookkeeping and accounting clear through the following:
• All things Accounting
• All things Bookkeeping
• Can Accountants be Bookkeepers?
All things accounting
Accounting is best described as a practice of maintaining accounts, and assessing liabilities, assets, and performing regular audits on accounts. Accounting is done to keep a check on the financial health of an organization.
Accounting is a standardized practice and most of the work performed by an accountant is for accurate reporting to the Revenue and Customs department. An accountant’s duties are detailed here:
• Analyzing financial data and providing consultation to create a healthy cash flow and increase total assets or profits. They subsequently ensure timely payment and regulation of taxes.
• Managing the financial data and complying with standard accounting laws and rules to ensure that the data is stored, managed and updated accurately. An accountant will choose the correct recording practices or system.
• The accountant ensures that the company follows the updated government regulation on all financial fronts and follows the industry standards.
All things bookkeeping
Financial data can be a lot to handle. Plus, it needs to stand the test of time (in terms of recording), and it never stops.
So, bookkeeping is all about keeping an accurate record of the financial data for a business. Bookkeeping involves creating, updating, and formatting the system for recording new information. Bookkeepers engage in the following activities:
• They constantly verify expense records for policy compliance. These should be in compliance with the government guidelines and industry standard, which will be notified to the bookkeeper by the accountant.
• Bookkeepers create credit and debit accounts and categorize them based on the categories of transactions or expenses. Each account will also be linked to a mode of payment.
• They record the data for each transaction, and perform data entry on each of the incoming and outgoing payment, including the mode of payment (this includes cash and checks).
• Bookkeepers implement the accounting software for a single or double entry system of accounting (this will be selected or approved by the accountant).
• They manage all banking activities of an organization, like approving the addition of expenses, sending out salaries, processing monthly cuts, and managing funds.
• They maintain the balance in the liabilities and assets of an organization in the entry system.
• A bookkeeper also supervises the process of data entry or handles it. And, they flag any discrepancies too.
Also Read: CloudBooks for Accounting- Link
Are accountants and bookkeepers the same?
Accountants and bookkeepers work together to establish healthy financial practices in a business. But they don’t have the exact same profile on paper.
Both accountants and bookkeepers might possess the same college degree, but the work experience and specifics of education distinguish them. An accountant has to clear a standardized exam and obtain a formal certification to be termed as an “accountant”. This involves completing a set coursework along with attaining certain work experience.
The procedure to obtain the title of Certified Public Accountant (CPA) differs from state to state and country to country (so does the term). Both the eligibility and the coursework can vary.
Bookkeepers can obtain this certification too if they want, and they will then be eligible for the same work profile as an accountant, or can be identified as an accountant in the general sense.
Accountants, however, can perform the duties of a bookkeeper without any extra training since they are well versed in bookkeeping tips and tricks.
So, now that you are aware of the differences between bookkeeping and accounting, you can easily decide which process will be more suited to your business in particular.