Are Bookkeeping and Accounting the Same?
Bookkeeping is the process of recording daily transactions of a business and is a key component to building a financially successful business. Bookkeeping is normally completed by bookkeepers. Some tasks regularly undertaken by a bookkeeper can be:
- Recording financial transactions
- Credit Control (issuing invoices to customers)
- Accounts Payable (receiving invoices from suppliers)
- Paying suppliers
- Maintaining and balancing general ledgers
- Bank reconciliation
- Petty cash
- Preparing initial financial statements
- VAT returns
Accounting software such as Sage, Xero, QuickBooks, Accountz etc. are used for recording financial transactions. Complexity of a bookkeeping system depends on the size of a business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by a business need to be recorded in the ledger.
Accounting is the process of analysing and interpreting of financial information compiled by a bookkeeper or business owner, and produces financial reports and statements which represent the financial performance of a business. These reports help business owners and directors to make informed business decisions.
The process of accounting is more subjective than bookkeeping, which is largely transactional. An accountant will be in a position, through analysis of past performance, to offer financial projections and advice on future financial elements of your business.
- Some of an accountant’s regular tasks can be:
- Preparing company’s financial statements
- Analysing costs of operations
- Management reports
- Completing income tax returns
- Corporate reporting and compliance
- Financial advice
Using the information entered by the bookkeeper into the ledgers, accounting reveals the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, financial forecasting, and tax filing.
You need basic accounting knowledge to be able to practice bookkeeping or accounting. In smaller companies, bookkeepers get more involved with the accounting process as well as recording financial transactions. They can generate financial reports using template reports from accounting software. Sometimes, an accountant records the financial transactions for a company, handling the bookkeeping portion of the accounting process.
To work as a bookkeeper you will need to study a few accounting courses and develop a basic understanding of accounting. To work in accounting, you must study for a higher level of expertise. Accountants are qualified to handle the entire accounting process, while bookkeepers are qualified to handle recording financial transactions. Bookkeepers record and classify financial data, the accountants analyse the financial data.
Bookkeepers are less expensive than accountants which make them a great choice for a company that needs day-to-day expertise. Pricing depends on geographic location and industry, as well as experience.
Many bookkeepers work as freelancers for small businesses in need of financial record keeping.
Many bookkeepers start as data-entry clerk for a business and grow, through experience and merit, into being a go-to person for the day-to-day financial recording. As they develop their skills through experience and studying, some bookkeepers move on to become accountants.
Both bookkeepers and accountants can study with a professional organisation such as IAB (International Association of Bookkeepers), ICB (Institute of Certified Bookkeepers) or AAT (Association of Accounting Technicians).
As a business owner how will you know if you need a bookkeeper or an accountant to help with the financial side of your business? The size of your business, the industry your company is in, how many employees do they have, are a few factors that can determine if you need a bookkeeper or an accountant.
The more complex the organisation, the more important it is to make sure that the company’s bookkeeper is also supported by an accountant who can provide advice as and if needed. It’s a great partnership that keeps communication open and data strong.
Is advisable to ask for client references and proof of insurance, which is available to both bookkeepers and accountants. To make you hire a qualified bookkeeper or accountant ask for references and call them. Also if certified, call the association or organisation through which the professional is certified.
At which stage in your business should you hire a bookkeeper or accountant? Advisable as soon as you start your business. However, many business owners however will try to sort out the information themselves and then have a bumpy ride when it comes time to transition.
If hiring a bookkeeper when starting up is not an option, consult with a bookkeeper or accountant when the business is started and then perhaps touch base periodically, such as once a month or quarter.
Ask for a quote or hourly fees, and fit in some sort of periodic meeting into your budget. Errors tend to continue until caught at year end or the next time a professional sees the books. Books set up accurate at the start of a business can be a strong tool for measurement and growth.