Accounting vs Bookkeeping: Know The Differences

Despite the fact that the phrases bookkeeping vs accounting are commonly used interchangeably, they are not the same.

The primary responsibilities of a bookkeeper are transactional, which include gathering and entering financial transactions.

An accountant’s responsibilities, on the other hand, are analytical and focused on financial performance, with the goal of using that data to assist you better manage your firm.

While online accounting software has greatly helped in the automation of bookkeeping and accounting operations, small business owners should be aware of the similarities and distinctions between the two.

What’s Bookkeeping?

Bookkeeping focuses on accurate documentation of your company’s financial transactions.

In most cases, your bookkeeper will employ double-entry bookkeeping to keep track of all of your financial activities. In double-entry accounting, every debit entry must be accompanied by a credit entry.

In bookkeeping vs accounting, while bookkeepers are primarily responsible for recording financial transactions, they also do a range of other tasks that are critical to the operation of a firm.

• Organize and categorize transactions: This involves verifying the accuracy of receiving bills and preparing them for payment.
• Write invoices: If your consumers never receive an invoice, you’ll never get paid. Tracking sales and preparing bills for goods and services given are among the responsibilities of a bookkeeper.
• Pay invoices on time: Small businesses must maintain strong relationships with their vendors, which is why it is critical to pay payments on time.
• Record customer payments: Customer payments should be recorded as soon as possible so that your accounts receivable balance is accurate and you don’t issue a past-due notification to a customer who has already paid.
• Month-end adjusting entries: While bookkeeping software has reduced the amount of journal entries required, month-end adjusting entries are likely to be required to account for expenses such as depreciation, interest expenses, bank charges, and other items that may have been overlooked.
• Prepare financial statements: While an accountant’s duty is to evaluate financial statements, a bookkeeper’s job is to prepare them on a monthly, quarterly, or annual basis, depending on the needs of the organization.

What is Accounting?

An accountant’s job can sometimes overlap with bookkeeper. The accountant’s role is to examine the information recorded by the bookkeeper using accounting principles, vs the bookkeeper’s job is usually centered on bookkeeping and transaction input.

The following are the primary accounting functions done by accountants:

• Analyze financial statements: While bookkeepers can run conventional reports such as financial statements, accountants are more likely to run these reports, which include a balance sheet, income statement, and cash flow statement, as well as any other reports deemed essential. The accountant’s duty also includes analyzing the information in the financial statements, such as monthly expenses, monthly income totals, the amount of cash on hand, and strategies to enhance corporate performance.
• Revenue and cost analysis: Bookkeepers enter transactions, but it’s up to the accountant to figure out what they represent. Everything from calculating accounting ratios to updating the general ledger might be part of this examination. Accountants also look at historical data to spot trends, such as increasing expenses, decreasing revenues, or product profitability.
• Taxes: Having an accountant on board is beneficial for a variety of reasons. While accountants can assist with tax return preparation, it is what they can offer in terms of tax deductions, tax planning, and ways to lower tax burden that makes them so important.
• Financial planning: Accountants are taught to look at the big picture when it comes to financial planning. While bookkeepers can notice trends, accountants can provide precise information and advise on how to increase income, reduce expenses, and improve the profitability of your products, among other things.

Read Also: Financial and Managerial Accounting: What Are The Differences?

Bookkeeping vs Accounting: What are The Main Differences?

Both bookkeeping and accounting are critical to the success of any small business.

While both deal with financial transactions, bookkeeping focuses on the organization and recording of such transactions, whereas accounting analyzes those transactions and their impact on your company.

The accounting equation Assets = Liabilities + Equity, which is considered the core of the double-entry accounting system, is used in both bookkeeping and accounting.

However, as similar as the two may appear, there are significant variances between bookkeeping vs accounting:

Those are some of the differences between bookkeeping vs accounting. In order for you to run your business effectively, consider to use an accounting and bookkeeping software such as Jurnal by Mekari.

Jurnal comes with so many features including:

• Automatically generates financial reports from the transaction records
• Record all aspects of  bookkeeping, including income, expenses, and other transactions, using an automated system that can provide detailed general journals quickly and easily.
• Access the List of Accounts, which has been created in a methodical and structured manner, at any moment to track, compare, or analyze your company’s data.

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Read also how accounting software can help retail and professional services.