You don’t spend your days worrying about the two unless you’re a bookkeeper or accountant (but hey, no shame if you do). Similarly, you’re unlikely to be aware of the difference between the two.
That’s because most people think of bookkeeping and accounting as the same, and they’re not entirely incorrect. Accurate bookkeeping and accounting are often confused because of their connection to financial reporting. While bookkeeping and accounting are linked, interdependent, and essential business functions, they are also different. This article looks at the differences between bookkeeping and accounting and how they intersect, and how each is changing.
Overview of bookkeeping
Are you unsure what bookkeeping entails? Simply put, bookkeeping is the method of maintaining a clear record of day-to-day financial transactions. A bookkeeper’s day can vary depending on the size of the organization they work for and the types of accounts they handle. However, all bookkeepers strive to ensure that financial data is entered and processed correctly.
A bookkeeper can be found on any given day:
- Benefits statements, balance sheets, cash flow statements, and net recognized profit and losses are all things that need to be prepared.
- Payroll processing
- Invoices from contractors and suppliers must be paid.
- Reconciling accounts
- Recording incoming cash
- Monitoring debt
- Assisting accountants to come tax season
- Maintaining the annual budget
- Reporting issues as they are
All in all, bookkeeping is a critical activity for any company. Having a good bookkeeper has many advantages, such as giving you peace of mind knowing your books are in good shape and assisting you in making better financial decisions for your business.
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Overview of accounting
One of the most significant differences between accounting and bookkeeping is that accounting encompasses a broader range of obligations and applies to the financial reporting process. Accounting’s primary purpose is to provide critical financial data to company owners, managers, and investors so that they can make well-informed, strategic business decisions. Accountants do this by carefully analyzing and interpreting financial data to generate advanced reports on the company’s results.
Consider accountants to be doctors: they examine symptoms (or financial data) and recommend a course of action to help companies boost their financial health.
An accountant can be found on any given day:
- Financial statement preparation and analysis
- Analyzing the costs of operations
- Keeping track of expenses that haven’t been accounted for by the bookkeepers
- Taking care of income tax returns
- Supervising the work of bookkeepers to ensure that they properly log and maintain records.
- Sort transactions into categories.
- Assisting business owners in gaining a better understanding of their company’s financial health.
- Assisting company owners in making well-informed strategic decisions.
- Putting in place measures to detect and deter financial fraud and embezzlement.
What skills do bookkeeping and accountants require?
The skillset required for both accounting and bookkeeping is a crucial difference. Sure, both bookkeepers and accountants need to be numerate and data-driven, but there’s more to it.
Formal training isn’t needed for bookkeepers, but the job entails more than simply entering numbers into spreadsheets. The best bookkeepers have good analytical skills, are excellent communicators, are well-organized and precise, and are well-versed in the fundamentals of bookkeeping.
On the other hand, accountants must have a bachelor’s degree in either accounting or economics. Most accountants choose between becoming an accountant and being a certified public accountant (CPA), which includes a college diploma, passing the CPA test, and working for a certain amount of hours under the supervision of a CPA.
What is the difference between bookkeeping vs. accountant?
While they may seem to be identical, bookkeeping and accounting are very different. The significant differences between priorities, key decision-makers, financial statements, reporting, and needed education can be seen in a high-level comparison of the two.
Primary objectives of accounting vs. bookkeeping
Accounting is the method of summarising, analyzing, and transmitting a business’s financial information, while bookkeeping is the process of defining, calculating, and documenting a business’s financial information. This data is then used to make essential business decisions.
Key decisions makers
When it comes to important decisions, business leaders depend on accounting rather than the details provided by bookkeeping.
Financial statement and reporting
Accountants, not bookkeepers, file financial statements. An accountant creates advanced financial reports using the financial documents generated by bookkeepers.
Although bookkeeping does not require formal education, accountants usually need a bachelor’s degree and advanced training.
How is artificial intelligence changing the landscape of bookkeeping and accounting?
When examining the differences between bookkeeping and accounting, it’s essential to consider the industry’s history and prospects. Accounting and bookkeeping are not as they were 50 years ago. With the introduction of automated technologies driven by artificial intelligence, functions have undergone a significant transformation in the last decade alone (AI).
For the past few years, artificial intelligence (AI) has become a buzzword in the technology world, and rightly so. AI, which is at the heart of accounting software innovation, has seen significant advancements as well. As a result, it has aided in the automation of almost all bookkeeping and accounting operations, resulting in increased speed and precision.
With AI accounting, bookkeepers no longer have to manually enter financial transactions because the software has taken over the task entirely. Much better, the capabilities of self-learning machines have significantly enhanced transaction classification.
What modern accounting and bookkeeping look like today?
So, if activities are automated, what part do bookkeepers and accountants play now? Since modern software can handle most bookkeeping tasks (such as creating financial records and producing reports), bookkeepers can devote their time to more critical tasks like working with colleagues and clients. Today’s bookkeepers have more time to coordinate input from various departments and ensure that records are complete and correct.
With the evolving profession of bookkeepers, so have their skill requirements. The best bookkeepers today have excellent people skills and can build stronger customer relationships. Furthermore, to deal with accounting software, modern bookkeepers must be technologically savvy.
In the same way, accountants’ roles have evolved. Certain accounting activities, such as ensuring enforcement and establishing internal controls for accuracy, have been taken over by software. Accountants now have more time to provide clients with value-added services.
The complex accounting software available today has combined the functions of accountants and bookkeepers to some degree. An accountant can now oversee the tracking of a business’s financial transactions with the aid of software, effectively taking over the primary role of a bookkeeper. In several organizations, bookkeepers have taken over summarising data in financial reports.