Businesses must maintain accurate and reliable financial records for many reasons, such as payroll, taxes, profit/loss data, etc. Small business owners shouldn’t attempt to maintain these records independently because it can be difficult and time-consuming. That is why you should use an accountant and bookkeeper to maintain your company’s financial records.
Do you know the difference between bookkeeping and accounting? Most people use the terms interchangeably because bookkeepers and accountants are both experts at calculating and managing financial data. They also both need to have accounting skills.
However, there are some functional differences between bookkeeping and accounting that you should understand regardless of your business size.
What is the Function of an Accountant?
An accountant is responsible for managing and recording a company’s financial information. A bookkeeper is a little different because they compile financial information for the accountant. Once the accountant receives this information, they can generate financial reports for the business owner.
A business owner can look at the financial reports to better understand the company’s financial status, future profit potential, current cash flow, and overall profitability. Accountants can also give financial advice to business owners and help them plan their taxes. Business owners rely on accountants to fill out, prepare and file all their income tax returns. Bookkeepers don’t do any of this.
Here are the primary tasks of an accountant:
- Prepare and file tax returns
- Review and assess a company’s financial information
- Give advice and financial guidance to business owners
- Create financial statements
- Create financial forecasting models
Numerous accounting practices exist. Some examples include financial accounting, tax accounting, managerial accounting, public accounting, and government accounting.
What is the Function of a Bookkeeper?
Bookkeepers manage and record a company’s financial data on a general ledger. This financial data includes all the debits and credits associated with the company’s business activities, such as income and expenses. Modern bookkeepers usually use computer spreadsheet software to record these activities in a digital ledger, but some bookkeepers may still use a physical notebook to do the recordings.
Maintaining a general ledger is a huge responsibility, which is why accountants rely on bookkeepers to do most of this work. Accountants use information recorded in the general ledgers to provide bookkeepers with financial advice and guidance. Bookkeepers don’t usually advise business owners because they are too busy maintaining the records in the general ledger. However, bookkeepers may also create customer invoices and manage payroll for company employees.
A bookkeeper’s most critical task is ensuring the company’s general ledger records match its bank statement records. The credits and debits of both records should match if the bookkeeper maintained the general ledger correctly and accurately.
Bookkeeper services are often categorized as accounting services, which is a huge reason why people confuse bookkeepers with accountants and vice versa. But the reality is that accountants depend on bookkeepers to maintain accurate financial data for the company. Then the accountants can analyze this information and make financial forecasts and predictions for the business owner.
Here are the primary tasks of a bookkeeper:
- Managing payroll
- Create and manage the financial data on the general ledger and all other financial balance sheets for the company
- Creating and tracking customer invoices
- Financial Reconciliation between the general ledger and bank statements
- Track all company sales and expenses
Bookkeepers record complex financial data in the general ledger using a double-entry or single-entry bookkeeping system. The business owner or accountant may have a particular preference for which system is better based on the complexity of the company’s financial transactions.
Certifications and Credentials
Most accountants need to have a four-year college degree in finance or accounting before working for a company. They must also apply for state certification before calling themselves Certified Public Accountants. Most companies won’t hire accountants who are not certified public accountants.
Bookkeepers don’t have as many education and certification requirements as accountants. Of course, they can apply to become a Certified Bookkeeper if they want a certification credential, but it is not always necessary for finding a bookkeeping job. All a bookkeeper needs is focus and financial knowledge to find bookkeeping work.
Accountants can work as bookkeepers, but bookkeepers cannot work as accountants unless they possess the same certifications.
The Primary Differences Between Bookkeepers and Accountants
Are you still confused about the differences between the job skills and functions of bookkeepers and accountants?
Here is a list of differences outlined below:
- Accountants must understand technical information quickly and know how to think analytically. Bookkeepers need comprehensive financial knowledge and great attention to detail.
- Accountants must assess a company’s financial status to give financial projections and advice to the owner. Bookkeepers create and maintain financial records for the company, so the accountants can analyze them.
- Accountants create money-saving tax plans for businesses. Bookkeepers don’t offer financial or tax advice to business owners because they are solely responsible for recording financial data.
- Accountants must pass a state certification exam before becoming Certified Public Accountants. Bookkeepers have the option to become certified, but it isn’t a requirement for employment.
As you can see, accounting and bookkeeping have some significant differences in how they function. Accountants used to create financial statements with accounting software, but now that is becoming more of the bookkeepers’ responsibility. Accountants may still use accounting software, but it is for analytical purposes rather than data entry purposes.
One thing for sure is that accountants and bookkeepers collaborate closely. The accountants wouldn’t be able to do their jobs properly without accurate financial recordkeeping from the bookkeepers. That is why they are vital for a company’s financial stability and success.