Best Price Guaranteed!

The Difference Between Bookkeeping and Accounting

3/7/20243 min read

When most people think about the difference between bookkeeping and accounting, they often struggle to distinguish between the two processes. While bookkeepers and accountants share common goals, they support your business at different stages of the financial cycle. Simply put, bookkeeping is more administrative, focusing on accurately recording financial transactions, whereas accounting is more analytical, offering strategic insights into your business's financial health based on bookkeeping information.

In this guide, we'll explain the functional differences between accounting and bookkeeping, as well as the roles of bookkeepers and accountants.

The Function of Bookkeeping and How It Fits Into Accounting

Bookkeeping is the process of recording daily transactions consistently and is crucial for gathering the financial information needed to run a successful business. Bookkeeping includes:

  • Recording financial transactions

  • Posting debits and credits

  • Producing invoices

  • Preparing financial statements (balance sheet, cash flow statement, and income statement)

  • Maintaining and balancing subsidiaries, general ledgers, and historical accounts

  • Completing payroll

A primary component of bookkeeping is maintaining a general ledger, where a bookkeeper records amounts from sales and expense receipts, referred to as posting. The complexity of a bookkeeping system often depends on the size of the business and the volume of transactions. All business sales and purchases must be recorded in the ledger, with supporting documents as required by the IRS.

Bookkeeping forms the foundation of accounting. Accounting practices involve pulling and analyzing financial data from your ledger, among other financial transactions like loan disbursements or payments.

The Function of Accounting

Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial models. Accounting is more subjective than bookkeeping, which is largely transactional. Accounting includes:

  • Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)

  • Reviewing company financial statements

  • Analyzing operational costs

  • Completing income tax returns

  • Helping business owners understand the impact of financial decisions

A key part of accounting is analyzing financial reports to help make business decisions, providing a better understanding of profitability and cash flow. Accounting turns general ledger information into insights, revealing the bigger picture of the business and its direction. Business owners often seek accountants for strategic tax planning, financial analysis, forecasting, and tax filing.

The Roles: Bookkeeper vs. Accountant

Bookkeepers and accountants sometimes perform similar work but possess different skill sets. Generally, a bookkeeper records transactions and keeps you financially organized, while accountants provide consultation, analysis, and are more qualified to advise on tax matters.

Bookkeeper Credentials

Typically, bookkeepers aren't required to have formal credentials or licenses. They need to be accurate and knowledgeable about key financial topics. Usually, an accountant or the small business owner oversees the bookkeeper's work.

Accountant Credentials

To qualify as an accountant, one generally needs a bachelor's degree in accounting or a related field. Accountants can also acquire additional professional certifications, such as Certified Public Accountant (CPA). To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and have professional accounting experience. These credentials often influence the cost of hiring an accountant.

Additional Resources

  • How to Hire the Right Bookkeeper for Your Small Business

  • How to Find an Accountant

  • Differences Between Bookkeeping and Accounting Software

Bookkeeping and Accounting Software

Most popular accounting software programs perform both bookkeeping (transaction recording) and accounting (preparing financial reports, analyzing trends). Examples include QuickBooks and Bench.

QuickBooks

QuickBooks offers both bookkeeping assistance and accounting services. Their bookkeeping platform connects to your accounts, with options for Live Assisted or Full-Service Bookkeeping. Their accounting services include software features for pulling reports and analyzing data, with additional tracking and reporting available in the QuickBooks Online Advanced program.

Bench

Bench provides full bookkeeping services by live bookkeepers, along with an accessible software platform for real-time account status. They offer tax advisory and filing services, alongside powerful reporting tools for monitoring financial health.

The Bottom Line

Organized financial records and balanced finances from a bookkeeper, coupled with strategic financial planning and accurate tax filing by an accountant, contribute directly to business success. Some business owners manage their finances independently, while others hire professionals to focus on their core business activities. Investing time or money into your business's financials will help it grow.

Interested in learning more? Contact Enter and Post LLC to explore our bookkeeping and accounting services tailored to your business needs.