Bookkeeping vs Accounting: What’s the Difference?

Accounting is the process of interpreting, classifying, and communicating financial information. This includes preparing financial statements, analyzing financial data, and providing advice on financial decision-making. Accountants are responsible for ensuring that a business’s financial information is accurate and compliant with regulatory requirements. While bookkeeping and accounting both support healthy finances and accurate financial records for businesses, they are not the same thing. Although they work together, they perform separate functions and require different skillsets.

Ask for referrals from friends, colleagues or your local chamber of commerce or search online social networks like LinkedIn for bookkeepers. Your business’s accounting needs might not require the in-depth expertise of a hired professional. You might also be watching your company’s list of expenses https://kelleysbookkeeping.com/what-is-the-retail-accounting-method-exactly/ and wondering where to reduce spending. In either case, consider handling the accounting yourself or delegating this responsibility to one or a few of your current employees. Awarded by the CFA Institute, the CFA certification is one of the most respected designations in accounting.

What is bookkeeping?

It consists of taking the information the bookkeeper records and using it to prepare financial statements, tax returns, and other financial reports. Accountants also use financial data to advise business owners on ways to improve their financial performance. For small businesses, adept cash management is a critical aspect of survival and growth, so it’s wise to work with a financial professional from the start. If you prefer to go it alone, consider starting out with accounting software and keeping your books meticulously up to date. That way, should you need to hire a professional down the line, they will have visibility into the complete financial history of your business. While bookkeeping and accounting are both essential business functions, there is an important distinction.

Of course, it is important to fill both positions with highly trained and experienced professionals to reap the full benefits that come from such services. Bookkeepers also make sure that the accounts Online Bookkeeping Services for Small Businesses of a business actually balance. They have the knowledge and skills to explain crucial financial information to business owners and make these reports actually make sense based on this information.

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Even with their similarities, bookkeeping and accounting are distinct and separate activities. Here’s a rundown on bookkeeping and accounting and what they both offer, but also how they differ. Accounting implies the system that identifies, records and maintains economic events and communicates the results thereof. It is related to summarizing the recorded transactions, interpreting them and then communicating their results. Industries that work with complex financial systems and high-volume transactions require accountants (i.e., government agencies, colleges, hospitals, etc.).

Basically, accounting takes all of that important financial data, prepares reports for business owners and investors and ready’s the reports for HMRC. Bookkeepers don’t need particular qualifications or training, although many bookkeepers enroll in classes to study the basics, such as double-entry bookkeeping protocols. A business might consider hiring a bookkeeper if it’s growing and the owner needs to spend more time and effort developing the business and increasing sales rather than record keeping.

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The knowledge of financial best practices can help keep your business healthy and growing. An accountant can be considered a bookkeeper, but not the other way around. If you are still deciding between bookkeeping vs. accounting, start with assessing the current financial position of your business. Compare that to how you want your business to grow financially and decide if this is something you can do on your own.

Accounting is responsible for interpreting, classifying, analyzing, reporting and summarizing financial data. The biggest difference between accounting and bookkeeping is that accounting involves interpreting and analyzing data and bookkeeping does not. All small-business owners should consider hiring a professional accountant to handle their tax returns, at the least. When it comes to bookkeeping, some business owners choose to manage those tasks themselves. You may not mind balancing the books and handling financial transactions, and software like QuickBooks Online, FreshBooks and Xero can automate a significant amount of this work. But as your business expands, bringing on a bookkeeper can alleviate your workload and free up your time to devote to other areas of the business.