Every business owner understands the need for bookkeeping and accounting to track their financial transactions. Proper bookkeeping and accounting allow you to stay updated on how your business is performing and provide valuable insights that you can leverage when making decisions.
Although the terms bookkeeping and accounting are frequently interchanged in the financial world, a fine line separates the two. While bookkeeping purely entails recording financial transactions, accounting is mainly concerned with summarizing, analyzing, and interpreting a business’s financial data.
In other words, bookkeeping can be considered a small part of accounting, whereas accounting has a much broader scope beyond bookkeeping.
What Is Bookkeeping?
Bookkeeping refers to managing and documenting all financial transactions in a business’s original books of entry.
These include tax payments, revenue from sales, loans received from financial institutions, interest income, wages, investments, and other operating expenditures.
As a general rule, books of account must be current since they serve as the foundation for accounting. In other words, the accuracy of a business’s accounting process is determined by the precision of its bookkeeping.
Some of the responsibilities of a bookkeeper include:
- Recording credits and debits to the general ledger
- Posting financial transactions
- Balancing and maintaining subsidiary ledgers and accounts
- Producing invoices
- Preparing payrolls
Although there are no official educational prerequisites to become a bookkeeper, one must be well-versed in financial jargon and aim for precision to be adequate in this position. The work of a bookkeeper is usually overseen by an accountant or the owner of a small firm.
What Is Accounting?
Accounting refers to summarizing, analyzing, interpreting, and reporting a business’s financial transactions.
Accounting financial statements provide a detailed overview of a company’s economic activities throughout a specific accounting period. Various parameters, including a business’ financial position, activities, and cash flows, are summarized in these statements.
The practice of accounting typically consolidates financial data to make it more intelligible and comprehensive for all the stakeholders in a business. It enables companies to keep up-to-date and accurate financial records that stakeholders can use to make future decisions.
The primary duty is to keep track of a company’s daily activities and aggregate them into financial statements, including the income statement, cash flow statement, and balance sheet. The stakeholders can then use these documents to evaluate a company’s performance.
Some of the roles that an accountant fills in an organization include:
- Preparing financial statements
- Analyzing the business’ cost of operation
- Computing key performance indicators (KPIs)
- Completing tax returns
- Offering financial advice to the stakeholders of the business
Although there is no official certification procedure for becoming an accountant, most accountants usually have a bachelor’s degree and relevant work experience. For example, a bookkeeper might refer to him or herself as an accountant. Still, it’s not a good idea unless they have the necessary degree or extensive job experience in accounting.
It is also worth noting that there is a marked difference between an accountant and a certified public accountant (CPA). In general, one must satisfy specific educational and work requirements and then pass an exam before being awarded a CPA designation.
CPA title-holders typically have more knowledge and expertise regarding tax codes, which means they can represent a business before the IRA when the company’s books of accounts are audited.
Should I Hire A Professional Bookkeeper or An Accountant?
Choosing when to recruit a competent bookkeeper or accountant can be quite challenging. However, there are various options you can choose from depending on your business’s unique needs and circumstances.
While some businesses choose to enlist bookkeepers and accountants to work for them part-time, others outsource their accounting and bookkeeping processes to dedicated firms.
These options are more cost-effective than having an in-house bookkeeping and accounting department. This makes them particularly appealing and suitable for small and medium businesses.
Regardless of the method you settle with, you will always enjoy the best results if you hire a professional. Some of the conditions that may necessitate hiring a competent bookkeeper or accountant include:
- If your business is experiencing growth
- If you find yourself spending too much time on bookkeeping tasks rather than profit-generating activities
- If your business tax obligations are complex
A Final Word
Although bookkeeping services and accounting services are different processes, they are closely intertwined and complementary.
Both responsibilities can be handled by a bookkeeper or an accountant as long as they are professional and experienced enough.
Whether you want to hire a bookkeeper or accountant, check for certification, relevant work experience, and references during vetting.