Accounting and bookkeeping are two terms often used interchangeably, despite being two fairly distinct functions that serve markedly different purposes in the financial world. To wit: while these two disciplines are certainly “related,” they differ widely in their specific professional roles, functions, and duty-scopes.
Read along below as we review the differences between bookkeeping and accounting, along with the respective import of either to your business.
Bookkeeping is an essential process that primarily (if simplistically phrased:) involves recording financial transactions in a consistent and staunchly organized manner. -It’s a crucial aspect of accounting, one might say, and provides the foundation for producing any/all financial statements and reports used in accounting.
Bookkeeping entails any number of tasks in constant “balance,” among these:
- Recording financial transactions
- Posting debits/credits
- Organizing and (at a moment’s notice) producing invoices
- Prepping financial statements (e.g., balance sheets, cash flow and income statements…)
- Maintaining and balancing subsidiaries, general ledgers, and “historical” accounts
- Payroll duties
The quintessential tool of the bookkeeper is a well-maintained general ledger, which is a document for meticulously recording all sums/figures from both sale- and expense receipts. A ledger can be created using specialized software, a computer spreadsheet, or—believe it or not—a substance commonly referred to as “paper.” The complexity of a bookkeeping system inherently depends on the size of the business and the number of transactions completed daily, weekly, monthly…
Accounting is a high-acuity, highly-involved process that encompasses the comprehensive analysis of financial data (as compiled by a bookkeeper or—frequently to their ultimate detriment—a business owner) to produce financial models with myriad practical applications. The accounting process could fairly be labeled more “subjective” than bookkeeping, which is (the latter) largely transactional. Some of the most important facets of the accounting process include:
- Preparing all “adjusting” data entries (i.e., recording expenses that have occurred, but have yet to be recorded in a bookkeeping ledger)
- Broadly reviewing financial statements
- Analyzing overall operational expenses
- Completing state and federal income tax returns
- Tactfully guiding business owners to more thoroughly understand the potential impact range of all financial decisions
One absolutely crucial accounting function is analyzing financial reports in an effort to ensure business owners can make informed financial/budgetary decisions at all times. Accounting can be regarded as the transformation of all manner of data from “markings on a ledger” into tangible insights (-if you’ll forgive the slight oxymoron) that help reveal the bigger picture of a business—and the particular path a company is progressing on, for better or worse. Accountants typically provide general (relevant) consultation along with analysis and are, of necessity, highly qualified to advise on tax matters.
Roles of Bookkeepers and Accountants
Bookkeepers and accountants have different, well-defined roles in the financial cycle. The former is responsible for recording and organizing financial transactions, while the latter provides the aforementioned analysis, consultation, and tax guidance. Bookkeepers don’t require any “formal” education, per se, but they obviously need to be sticklers for accuracy and knowledgeable about key financial topics—not to mention comfortable with numbers. Typically, a bookkeeper’s work is overseen by either an accountant or the business owner. -Which is all to say, without any intended sleight: a bookkeeper can’t rightly call themselves an “accountant.”
To qualify for that title, an individual must have a bachelor’s degree in (of all things!:) accounting. (Certain finance degrees are sometimes considered an adequate substitute for an accounting degree proper.) Accountants, unlike bookkeepers, are eligible to acquire additional professional certifications—and as a natural part of their progression, usually do. For example, accountants with sufficient education and expertise can obtain the designation “Certified Public Accountant” (CPA), one of the most common accounting appellations, by passing the Uniform Certified Public Accountant exam after having accrued a certain amount of professional experience.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. Follow us on Facebook, Twitter, YouTube, and LinkedIn for more tax tips.