Have you always thought that bookkeeping and accounting is the same thing? This is not true. Both bookkeeping and accounting have different roles to play in the success of your business. Read this blog post to find out the difference between the two.
Most people find it hard to distinguish between the terms bookkeeping and accounting. While it is true that accountants and bookkeepers share similar goals, they support your business in two very different stages of your financial cycle. Accounting is subjective and gives you business insights based on bookkeeping information. Bookkeeping on the other hand is administrative and transactional and is mainly concerned with the accurate recording of financial transactions.
If you are not sure whom to hire, then read on. In this blog post, we will tell you the functional difference between accounting and bookkeeping and the difference in the role of a bookkeeper and accountant.
Bookkeeping and bookkeepers
Bookkeeping is the process of recording daily transactions in a consistent fashion. It is a key component to building a successful business. Bookkeeping is comprised of recording financial transactions, posting credits and debits, producing invoices, maintaining/balancing general ledgers accounts and managing payroll.
In bookkeeping, a general ledger is maintained where a bookkeeper records amounts from expense and sales receipts. This is referred to as posting. An entry is made into the general ledger, every time a sale is completed. The bookkeeping system a company chooses usually depends on the type of transactions that are completed on a monthly, weekly and daily basis.
Bookkeepers are required to have around 2 to 4 years of experience along with a financial degree. For successful bookkeeping to happen, the bookkeeper you choose has to be a stickler for accuracy and also be knowledgeable about important financial topics. An accountant would usually oversee the bookkeeper.
Accounting and accountants
Accounting is a process that uses the financial information compiled by a business owner and creates financial models using that information. When compared with bookkeeping, the process of accounting is more subjective and is comprised of preparing/adjusting entries, preparing company financial statements, evaluating the cost of operations, completing income tax returns and helping business owners to understand the impact of their financial decisions.
Accounting offers reports that bring together key financial indicators together. With accounting, you can get a better understanding of actual profitability and an awareness of cash flow in your business. Accounting can convert information from your ledger into statements that can show you the bigger picture of your business and the path that your company is moving towards. Only an accountant can help with strategic tax planning, tax filing or financial forecasting.
An eligible accountant would have a degree in accounting or finance. Unlike bookkeepers, accountants are required to also possess other professional certifications like CPA (Certified Public Accountant)
Outsourcing bookkeeping and accounting
Understanding the difference between accounting and bookkeeping can be empowering for your business, as you will be able to determine how and when to use both accountants and bookkeepers. Keep in mind that properly balanced finances along with organized financial records, accurate tax filing and effective financial strategy can directly lead to the long-term success of your business. While some business owners prefer to manage their finances on their own, you can opt to hire the services of a professional so that you can focus on the core functions of your business. At Outsource2india, we are a one-stop shop for everything you need for business financials be it accounting or bookkeeping. Find out more about our accounting services to get started.
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Interested to know more?
- Which Bookkeeping System Do You Prefer?
- 5 Questions to Ask before Outsourcing Bookkeeping or Accounting
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