Ask someone what the difference between an accountant and a bookkeeper is, and they may find it difficult to answer. Some would say they’re the same – but that would be incorrect. While bookkeepers and accountants share common tasks and functions, they support businesses in different stages of the financial cycle.
Here’s an explanation of the functional differences between accounting and bookkeeping, as well as what differentiates each role.
The Function of Bookkeeping
Simply put, bookkeeping is the process of consistently recording daily transactions. It is a key component to building a financially successful business.
Bookkeeping is made up of:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
- Completing payroll
The maintenance of a general ledger is one of the main components of bookkeeping. The general ledger is a document where a bookkeeper records the amounts from sale and expense receipts. This is referred to as posting, and the more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or on paper – if you do it ‘old school’.
The size of the business and the number of daily transactions dictate the complexity of a bookkeeping system. All sales and/or purchases made must be entered in the ledger along with items that need supporting documents. The IRS has provided which business transactions require supporting documents on their website.
The Function of Accounting
Accounting is a process that uses financial information compiled by a bookkeeper or business owner and produces a financial model that utilizes that data.
The process of accounting is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
- Preparing/adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
- Preparing company financial statements
- Analyzing costs of operations
- Completing income tax returns
- Helping business owners understand the impact of financial-related matters.
The accounting process offers reports that bring together various important financial indicators. The final result is a better comprehension of business profitability and cash flow. Accounting turns the information from the ledger into statements. This provides an overview of the business and its financial path. Business owners often look to accountants for assistance with strategic tax planning, filing, and financial forecasting.
Work Smarter, Not Harder
While both accountants and bookkeepers’ function are often tedious, they don’t always have to be. Easy access to various documents such as payroll data, general ledger, and tax-related forms makes managing a small business’s finances simpler and more efficient. Fingercheck offers a convenient, cloud-based portal where accountants can securely access client payroll data, general ledger, and tax-related forms – all from one place! This makes the work of an accountant or bookkeeper much simpler.