Your gut reaction might assume that bookkeeping and accounting are the same things. While they\u2019re related, a bookkeeper and an accountant perform distinct jobs in an organization. A bookkeeper essentially keeps track of a firm\u2019s financial transactions. This includes invoices the company pays out in addition to the payments and revenues a firm receives.<\/p>\n
An accountant, on the other hand, takes on a more analytical role. Accountants look at financial statements, such as a statement of cash flows. It\u2019s the accountant\u2019s job to review them for accuracy and analyze them. They look at the overall fiscal health of a company\u2019s operations and make recommendations to business owners or decision-makers.<\/p>\n
Below are more details that help answer the question of what is the difference between bookkeeping and accounting.<\/p>\n
Bookkeeping is the process of organizing all of an organization\u2019s financial transactions and documenting them. A bookkeeper prepares financial statements and reports based on a company\u2019s revenues and expenses. Bookkeeping forms the foundation of accounting, but an accountant has a higher level of analytical responsibilities.<\/p>\n
Bookkeeping is the process of maintaining and organizing a company\u2019s general ledger. The main difference between bookkeeping vs. accounting is that bookkeepers essentially create the books. They take things like invoices and payroll taxes and document them, usually in a spreadsheet or software application.<\/p>\n
Bookkeepers must record all financial transactions in an organized and linear fashion. They\u2019ll document revenues and expenses as they occur. Bookkeepers will note the dates the payments went out or the company received the income. Accuracy is critical, as bookkeepers record each day\u2019s transactions.<\/p>\n
Bookkeeping is critical to an organization because business owners and leaders rely on the financial information bookkeepers prepare. The information bookkeepers put together is what produces a firm\u2019s financial statements. Accountants use these statements to analyze how well the company is doing from a monetary perspective.<\/p>\n
If the information that creates those financial statements is incorrect in any way, it will impact the conclusions an accountant makes. An accountant\u2019s recommendations to leadership will then be off base and could cause decision-makers to make a wrong move.<\/p>\n
For instance, if a company\u2019s balance sheet indicates it is more liquid than it actually is, leadership might decide to expand or reinvest in the business when it would be better to maintain the status quo. Shareholders of publicly traded companies also rely on the integrity of financial statements to make investment decisions. Incorrect financial statements could cause a firm\u2019s stock to become overvalued and put shareholder\u2019s investments at risk.<\/p>\n
Necessary credentials are tied to what bookkeepers do. Although they do not have to get any certifications or licenses, quite a few do. Bookkeepers also do not necessarily have to complete a formal degree program. However, some go to trade school or complete bookkeeping courses.<\/p>\n
For aspiring and current bookkeepers, professional licensure is possible. The National Association of Certified Public Bookkeepers and the American Institute of Professional Bookkeepers both grant professional bookkeeping licenses. This can help distinguish a bookkeeper from others when seeking employment. Some employers may prefer to hire and retain bookkeepers with professional credentials.<\/p>\n
Certifications and licensures require a certain amount of work experience in the profession, such as two years. Bookkeepers also have to pass exams and complete continuing education courses. Certification through the National Association of Certified Public Bookkeepers can expand into specialties like payroll.<\/p>\n
Accounting involves analyzing the firm\u2019s financial transaction through statements such as the balance sheet, statement of cash flows, income statement, and statement of shareholders\u2019 equity. These statements usually summarize a company\u2019s financial position for a designated period. For example, a set of statements might cover a quarter or an entire fiscal year.<\/p>\n
An accountant interprets the information in the financial statements and presents it in a way that makes sense for all stakeholders. An organization\u2019s stakeholders can include employees, investors, financial analysts, and community members. Accountants help shape management\u2019s analysis of the firm\u2019s financial position and the factors that led to growth or might pose a threat.<\/p>\n
Accounting is important because the analysis and interpretation of financial statements guide decision-makers. A firm\u2019s management depends on an accountant\u2019s analysis and financial projections to make strategic decisions. From the statements and analysis, an organization\u2019s leadership can understand the company\u2019s financial performance.<\/p>\n
Can a bookkeeper call themselves an accountant? Not unless that bookkeeper also has a bachelor\u2019s degree in accounting and a certified public accountant <\/a>(CPA) credential. After they complete their four-year degree, a person also has to pass the CPA exam.<\/p>\n The exam process and requirements can vary between states, but there is typically a Uniform CPA exam in each. Different states may also have additional accreditation and professional licensure requirements, including continuing education. The CPA exam and continuing education stipulations are more advanced than those for bookkeeping.<\/p>\n To help answer the question of what is the difference between bookkeeping and accounting, it helps to look at the main tasks each accomplishes. A bookkeeper will often perform the following:<\/p>\n In comparison, an accountant usually completes the following tasks:<\/p>\n Many businesses have to decide whether to find an accountant<\/a>, hire a bookkeeper, or do both. Knowing the differences between each role can help owners decide whether they need both. Typically, larger organizations employ both bookkeepers and accountants. Smaller firms might keep a bookkeeper on staff and consult a CPA for more advanced analysis, including tax preparation.<\/p>\nKey Differences<\/h2>\n
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