The Difference Between Bookkeepers and Accountants
Bookkeeping is more transactional and administrative, concerned with recording financial transactions. Accounting is more subjective, giving you business insights based on bookkeeping information.
In this guide, we’ll explain the functional differences between accounting and bookkeeping, as well as the differences between the roles of bookkeepers and accountants.
The function of bookkeepingBookkeeping is the process of recording daily transactions in a consistent way, and is a key component to building a financially successful business.
Bookkeeping is comprised of:
• Recording financial transactions
• Posting debits and credits
• Producing invoices
• Maintaining and balancing subsidiaries, general ledgers, and historical accounts
• Completing payroll
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. This is referred to as posting and the more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.
The complexity of a bookkeeping system often depends on the the size of the business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents.
The function of accountingAccounting is a high-level process that uses financial information compiled by a bookkeeper or business owner, and produces financial models using that information.
The process of accounting is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
• Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
• Preparing company financial statements
• Analyzing costs of operations
• Completing income tax returns
• Aiding the business owner in understanding the impact of financial decisions
The process of accounting provides reports that bring key financial indicators together. The result is a better understanding of actual profitability, and an awareness of cash flow in the business. Accounting turns the information from the ledger into statements that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, financial forecasting, and tax filing.
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