Ever wonder what the difference is between and an accountant and a bookkeeper? Then you’re in the right place.
Key Differences Between Accounting and Bookkeeping
Bookkeeping and accounting both manage finances within a business. Due to this, they can seem very similar in their roles and responsibilities. However, there are a few main differences between bookkeeping and accounting.
A bookkeeper will monitor and record financial transactions made by a business. This can be payments made by the business and monies received for products/services. These financial records are then given to the accountant
An accountant works together with the bookkeeper. The accountant will analyse and review the financial data provided by the bookkeeper. They will then draw up financial reports that are filled with financial details and statistics. These reports are then presented to the owner of the business and used to determine the business’s financial position.
Also see: Bookkeeper Vs Accountant: What Does Each Do?
This information can further be used to influence any financial decisions for the business as well as for tax returns.
Let’s take a closer and more in-depth look at the differences between accounting and bookkeeping.
About Bookkeeping
Bookkeeping focuses on recording daily transactions. These transactions can be recorded manually in a general ledger or by using bookkeeping software. These transactions are then organized methodically so that they are ready for tax filing. Accurate bookkeeping is a crucial part of businesses and can determine long-term success.
Bookkeeping is generally found in all businesses but can be solely used in small businesses, especially during their start-up phase.
The bookkeeping process will typically involve:
- Recording financial transactions of the business
- Managing debtors and creditors
- Collecting expense receipts
- Drawing up invoices for customers
- Preparing financial statements, balance sheets, cash flow statements, and income statements
- Ensuring the general ledger is up to date and balanced, and all historical accounts are correctly filed
- Completing payroll for the company
There is a bookkeeper charge for their services. This amount will be based on the specific services required by the business owner, the bookkeeper’s expertise and experience and the local market.
About Accounting
A financial professional such as an accountant goes one step further than bookkeeping. An accountant will take the bookkeeper’s work and will interpret, analyse and present the information to the business owner. The accounting process will involve:
- Receiving financial data from the bookkeeper and preparing income statements, balance sheets and financial reports
- Analyse and verify that the provided information is correct
- Managing budgets
- Performing income tax returns
- Analysing business performance and offering advice to the owner
There is an accountant charge for their services.
The roles that bookkeepers and accountants perform differ between businesses based on their size and requirements. Bookkeepers that work for smaller businesses might do some basic accounting tasks.
Therefore, there’s often an overlap in what they do, and the duties may change a lot from one business to another.
Differences in Certification
There are also differences between accountants’ and bookkeepers’ certifications.
Bookkeeping
A bookkeeper’s journey can begin straight away with just a high school qualification. Since many students have studied accounting in high school, they will already have a general idea of managing financial books. Once an official bookkeeping job has been acquired, all other skills will be learnt while doing the job.
That being said, it elevates one’s chance of being employed if further education is pursued. A bookkeeping qualification can be in the form of a diploma or certificate, through the Institute of Certified Bookkeepers (ICB).
In the UK, the ICB is recognised by HMRC as a professional body for tax purposes. ICB members who are also qualified Certified Chartered Accountants (CCA) can give their clients tax advice to save them money.
The ICB offers three different levels of bookkeeping courses. Each comes with its own “title”.
- ICB Level 2 Certificate – Associate
- ICB Level 3 – Member
- ICB Level 4 – Fellow
The AAT (Association of Accounting Technicians) also offers three short bookkeeping qualifications (levels). These can take from two to 12 months to complete. The third level can be used as a pathway to achieving professional AAT bookkeeping member (AATQB) status.
Accounting
To become an accounting professional such as a chartered accountant or certified public accountant, you must earn a bachelor’s degree from an accredited university or college.
This field of study will require you to participate in in-depth training and finish off by passing exams. The most popular accounting qualification is AAT which is made up of three levels. That is Level 2, Level 3 and Level 4. Each level takes about one year to complete. This will need to be done through an industry-recognized body such as the ICAEW (Institute of Chartered Accountants in England and Wales) or the ACCA (The Association of Chartered Certified Accountants).
Successful accountants will need to keep their skills up-to-date. This includes knowledge of important tax laws and possible changes. Accountants are highly beneficial because they also know tax codes.
Accountants can work for various clients and they play a key part in the financial success of the company.
Advantages of Bookkeeping
A bookkeeper’s role of recording expenses has a few advantages for the business:
- Organization – Bookkeeping is essential for organizing financial records and keeping them on file. This will also save the business owner money if they later decide to hire an accountant as all financial data will already be in order.
- Cost-effective – Bookkeepers are more affordable than their fellow accountants. This can vary based on the type and amount of services required.
- Straight-forward assessments – A bookkeeper will provide the business owner with a direct look at their business’s current financial standing
Advantages of Accounting
- Analysis – The accounting process involves providing the business with a comprehensive view of its financial position. This can be used for financial forecasting.
- Expertise – Certified public accountants acquire more work experience and certifications than bookkeepers, therefore bringing much more expertise to important aspects.
- Legal advice – Due to their expertise as mentioned in the above point, they can assist in making financial business decisions.
Are Bookkeepers Accountants?
As mentioned earlier, both roles have the same goal in mind for companies. But due to their different qualifications, a bookkeeper cannot be considered an accountant without acquiring the necessary paperwork.
When To Hire A Bookkeeper or Accountant
Business structure
Whether to hire a bookkeeper, accountant or both is based on your business and its needs, your financial standing and your growth plans. A small business can usually operate with just a bookkeeper, whereas larger businesses may require both professionals.
Tax preparation
Accounting and bookkeeping are both useful when it comes to tax planning and preparing for an internal auditor. All business owners, even a small business owner must prepare their companies for tax returns and tax credits.
FAQS
What is the main difference between bookkeeping and accounting?
Bookkeeping is mainly recording financial transactions daily and keeping organized files of the business’s incoming and outgoing monies. Accounting takes that data and presents it in a logical and comprehendible manner in an attempt to aid a company with its financial decisions.
What are the common roles of bookkeeping?
These include recording financial transactions and preparing financial statements for accountants and business owners. Professional bookkeepers will maintain bookkeeping records and ensure they are up-to-date.
Can I do my own bookkeeping?
You can! This is very common for small business owners or sole traders. They will then hand over their financial information to their hired accountants. You can find many free bookkeeping courses online to begin your learning journey.
What is the difference between an accountant and a chartered accountant?
An accountant has received proper certification in accounting. A chartered accountant (CA) is a member of either the Institute of Chartered Accountants or the Association of Chartered Certified Accountants and has gained a certain amount of professional experience and passed a CA exam.
Should I be a bookkeeper or an accountant?
This is a personal choice. Accounting requires more years of schooling and experience but the benefit is that it is a higher-paying job. Both jobs deal with money and finances. You may have a keen interest in bookkeeping but are weary of the pressures of accounting. It’s best to do thorough research on both before making a decision.
Conclusion
To help make the best-informed decisions regarding your business and to avoid any legal issues, it’s best to hire a professional accountant. This will ensure all financial documents are in order for tax planning and tax filing.