Bookkeeping and Accounting: What’s the Difference?

The terms Bookkeeping and Accounting are often used interchangeably. While both deal with the finances of small and mid-sized businesses, they both have very different meanings and provide contrasting financial information. We’re breaking down the key differences between the two, so you have a better understanding of what they mean and how they fit into your business.

Job Responsibilities according to the Bureau of Labor Statistics

Bookkeepers:

• Use bookkeeping software, spreadsheets, and databases
• Post financial transactions
• Receive and record cash, checks, and vouchers
• Put costs (debits) and income (credits) into the software
• Produce reports, like balance sheets, income statements, and totals by account

Accountants:

• Examine financial statements to ensure accuracy
• Organize, analyze, and maintain financial records
• Assess financial operations, identify risks and challenges, and make best-practices recommendations to management
• Strategize on ways to reduce costs, enhance revenues, and improve profits

The main difference here is strategy. At TGG, our accountants are focused on growing your business and most importantly, helping you achieve your personal and professional goals. In general, accountants are more proactive in helping you boost the cash flow of your business while bookkeepers are more reactive and focused on accurately recording transactions.

Where They Overlap

The work of an accountant will overlap with the job responsibilities of a bookkeeper. A bookkeeper is recording the transactions so it’s up to the accountant to review the information and interpret it to make key decisions that will benefit the business. Therefore, it is so important that transactions are entered correctly so key decisions can be made based off accurate information.

Education & Credentials

Bookkeepers are not required to have any formal education or degree. Most bookkeeping qualifications are at a diploma or certificate level.

Accountants must have a degree in Accounting or Finance to call themselves an Accountant. Accountants can also pursue Certified Public Accountant (CPA) and or Certified Management Accountant (CMA) licenses.

Taxes

A bookkeeper may pay your taxes for you, but they do not give tax advice or communicate with the IRS.

Accountants prepare detailed financial statements, perform audits, and may prepare reports for tax purposes, but an accountant has no standing with the IRS. Only CPAs, tax attorneys, and “Enrolled Agents” represent a taxpayer in audits and investigations with the IRS.

Hire a Bookkeeper or an Accountant?

The answer to this question is that it depends on the needs of your business and how you plan to grow and scale. Keep in mind, that the more you grow, the more accounting support you will need to manage the increase in the number of transactions. One thing that’s certain, is that you need to have oversight of your accounting department in order to significantly decrease or completely eliminate your risk of fraud. According to the Association of Certified Fraud Examiners report the average size of the fraud was $200,000 per occurrence for businesses with fewer than 100 employees.

Summary

Compared to accounting, bookkeeping is more transactional and administrative, with a strong focus on recording financial transactions. Accounting is more subjective, giving you insights into your business’s financial health based on bookkeeping information.

How We Can Help

TGG is a leading provider of outsourced accounting and business advisory services for small to mid-size businesses across industries. Our mission is to improve business owners’ lives through excellent financial management.  As a fully scalable accounting and finance consulting team, we work as a natural extension of our client’s business, tailoring our services to fit their specific needs. TGG provides timely, actionable information to management teams through detailed measurement, reporting and analysis of financial metrics and results.  By managing through numbers and metrics, companies are able to maximize income, understand their cash position, and improve visibility into the future performance of the business.

Other Resources:

The Benefits Of Outsourcing Finance & Accounting

The Accounting Dream Team: Roles and Responsibilities