Bookkeeping and accounting play a vital role in the business landscape, and both might appear to be the same profession to an untrained eye. But there is a difference between the accounting and bookkeeping services.
Bookkeeping is all about recording the financial transactions of a business, whereas accounting involves interpreting, classifying, analyzing, reporting, and summarizing the recorded financial data.
You should know that an accountant can be considered a bookkeeper, but a bookkeeper can’t work as an accountant until he has a proper certification.
Read this guide to uncover the significant difference between bookkeeping and accounting.
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Regarding bookkeeping vs. accounting, a common misconception many business owners have is that both are considered to be one profession.
Although they seem similar, there are two different financial concepts.
Bookkeeping encompasses a transactional and administrative role that handles regular tasks of recording financial transactions, such as purchases, sales, receipts, purchase returns, sales returns, and payments.
On the other hand, accounting plays a more subjective role by providing business owners with valuable financial insights based on information from the bookkeeping data.
Both accounting and bookkeeping services are crucial for any business setting. Bookkeeping is vital to generate data about the company’s activities, and accounting is designed to turn data into valuable information or insights to make business decisions.
A professional bookkeeper is responsible for maintaining complete records of the cash inflows and outflows of the business.
Many organizations these days outsource bookkeeping services to record daily transactions consistently and in an easy-to-read way. A bookkeeper doing his job correctly allows accountants to do their job further.
Bookkeeping is comprised of the following:
- Recording financial transactions
- Posting debits and credits
- Generating invoices
- Maintaining and balancing general ledgers, subsidiaries, and historical accounts
- Preparing financial statements like balance sheets, profit and loss, income, and cash flow statements.
- Completing payroll
Accounting is a high-level process wherein accountants use financial data that a bookkeeper compiles to produce financial models.
For instance, the accountants offering hospitality accounting services will gauge the financial situation of your hotel or restaurant and then communicate the procured information or insights to the relevant authorities to help them in decision-making.
Accounting is comprised of the following:
- Preparing adjustment entries (for example, recording expenses that have occurred but not yet recorded by the bookkeeper)
- Analyzing the company’s cost of operations
- Reviewing the company’s financial statements
- Completing and filing income tax returns
- Helping entrepreneurs understand the impact of their financial decisions
Although the bookkeepers don’t have to be certified to handle the accounting books for companies, licensing is available. The NACPB and the AIPB are two recognized associations in the US that offer accreditation and licensing to bookkeepers.
The NACPB certification requires individuals looking forward to providing professional bookkeeping for a restaurant or any other business to pass tests for small business accounting, bookkeeping, financial management, and payroll.
On the other hand, AIPB offers credentials to bookkeepers with at least two years of full-time work experience and who pass a national exam. In addition, the AIPB requires bookkeepers to engage in continuing education to maintain their credentials.
An accountant’s qualifications depend on his experience, certification, and license. It is a must for the individual to earn a bachelor’s degree from a recognized college or university to become an accountant.
There are many different types of accounting certifications that accountants can obtain in the US to expand their skill sets and work within larger enterprises.
Aside from CPA credentials, an accountant can apply for other designations like certified internal auditor (CIA) and chartered financial analyst (CFA). To become a CPA, an accountant must meet his state’s requirements and pass the Uniform CPA exam. In addition, to maintain the accreditation, the CPA requires accountants to meet ongoing education requirements.
The CFA Institute awards the CFA certification after an accountant completes the specific program. Also, the same accountant must have four years of relevant work experience to be CFA certified.
Lastly, CFAs are required to pass a three-part exam. A CIA is certified to conduct internal audits. For an accountant to be a CIA, he must pass the required exam and have two years of relevant experience.
Many business owners are confused about whether to outsource bookkeeping or accounting services. Some even think these services are the same. Little do they know that accounting and bookkeeping services play different roles and are crucial for a business’s long-term success.
On the one hand, bookkeepers can help prepare organized financial records and adequately balance finances.
On the other hand, accountants can help businesses with smart financial strategies and accurate tax filing.
Remember that whichever service you outsource, investing time and effort into your financials will only lead to business growth.