Bookkeeping and Accounting are two very critical disciplines within any organization. Often, these two terms are used interchangeably as they share a common goal in handling a company’s finances.
Accounting is the process of recording, classifying, selecting, measuring, and communicating the financial data of an organization to enable users to make decisions.
Bookkeeping is a component of accounting that maintains and records all daily financial transactions.
Let’s take a closer look at the distinctions between these two valuable professions and how working with both bookkeepers and accountants will benefit your organization.
1. Bookkeepers Organize Financial Data
The primary role of a bookkeeper is to record the individual transactions for a business into the general ledger, which summarizes all the financial information you have about your business.
Examples of these transactions are listed below:
1. Posting debits and credits such as sales or operating expenses
2. Reconciliations or matching the transactions to the bank ledger
3. Delivering reports such as the balance sheet or income statement
4. Calculating and preparing payroll checks
A bookkeeper inputs the financial data on a day-to-day basis. Ensuring the daily monetary transactions is what keeps a business running smoothly.
2. Financial Statements
Accountants start with the records the bookkeepers create, sometimes changing categorizations and adding non-cash journal entries, to then look at the business from a larger perspective. These records enable an accountant to analyze and interpret the data in reports that become great resources for business managers.
In addition to more specific reports, these financial statements are typically included in a reporting package prepared by an accountant:
◦ Income statement
◦ Statement of cash flows
◦ Statement of retained earnings – optional
These main financial statements are audited by accountants, government agencies, and other firms to ensure accuracy for tax, financing, or investing purposes.
Accountants are proficient in taking the information from the financial statements and general ledger and extrapolating the data to reveal higher-level financial structuring and analysis for a business.
Accountants will set, organize, and analyze financial indicators while scrutinizing any inconsistencies or irregularities.
The result is a better understanding of actual profitability and awareness of cash flow in your organization. This information is essential in forecasting and predicting a company’s future trajectory.
4. Management Decisions
A business management team will use the data interpreted within the financial statements to make decisions that affect the organization’s future direction.
Any accountant may summarize their analysis and make recommendations to these decision-makers. They also can investigate any out-of-the-box discrepancies or address complex accounting issues.
Most importantly, your accountant is a crucial advisor that can help you analyze the future: the impact of purchasing new equipment, hiring new team members, switching vendors, etc.. Accountants can list the financial ramifications of these vital management decisions.
5. Skill Sets
The required credentials between a bookkeeper and an accountant are perhaps the most significant difference between the two roles.
While bookkeeping may require specific skills, software knowledge, and training, no formal education or certification is required. The basic requirements are to be detail-oriented, excel in basic math, and be highly organized.
Accounting positions generally require a bachelor’s degree in accounting or a related field such as auditing.
In addition, many accountants have a CPA or Certified Public Accountant credentials. Most state boards require at least two years of direct experience before an accountant can sit for the CPA exam. This license should be continually renewed with additional classes and certifications.
There is a high level of overlap between a bookkeeper and an accountant. But for the most part, bookkeepers are concerned with the day-to-day maintenance of financial data. At the same time, accountants are focused on leveraging the company’s financial metrics to make wise business decisions.
If you are a small or medium business owner, your finances need to be in order. Without procedures to track transaction activities, a business must guess where its money is coming and going.
It is up to you to decide which expertise your company is ready to employ, as both roles are critical to sustainable business success. However, many organizations can outsource these disciplines during the early stages of development.
Ultimately, these two disciplines are made to work in tandem. Hiring a bookkeeper can bring peace of mind, knowing your finances are organized and ready for tax season. In addition, a qualified accountant can see financial and tax loopholes that can save your business money.
How FINSYNC Can Help
FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.