Have you ever wondered if bookkeepers and accountants do the same thing? The terms accounting and bookkeeping are often used interchangeably in business. Although they do have a few similarities, these two functions are different in important ways. Bookkeepers and accountants both help small businesses manage their finances, but they do so in different ways.
Bookkeeping involves keeping track of the financial transactions that happen in your business. Accounting is an integral part of bookkeeping and can be thought of as the "science" behind it. Accounting involves recording data from a company's ledgers into one or more financial statements that can be analyzed to determine how well a business is doing over time. The two terms aren't interchangeable, but it's important to understand what each does, and how they work together.
What is bookkeeping?
Bookkeeping is the recording of financial transactions. It's the process of keeping track of money coming in and going out.
- records all business transactions using a special ledger (book)
- posts those transactions to the general ledger
- reconciles account balances with the bank
Bookkeepers are responsible for keeping accurate records of business income and expenditures so that accountants won't have to spend time searching through stacks upon stacks of receipts or invoices just to compile financial reports. In short, bookkeepers make sure that everything is accounted for.
What is accounting?
Accounting is the process of recording, classifying, and summarizing business transactions for use in making business decisions. Accounting involves more than simply keeping financial records; it also involves interpretation and analysis of data to identify trends within your organization that can help you make informed business decisions.
Accounting involves three main parts:
- Recording economic events (such as sales revenue and expenses) in a ledger or journal
- Classifying those entries based on their nature (revenue vs. expense, for example)
- Summarizing them into reports that can be used by the company or outside investors
Accounting is not just about numbers, it’s about making sure that your company has the information it needs to manage its finances effectively. As such, accounting is an important management function in any organization.
Club Capital provides monthly accounting, tax, and CFO services for insurance agency owners. With 100% of our clients in the insurance industry, we are built to help you grow your agency faster with industry-specific accounting, tax, and CFO services.
What's the difference between accounting and bookkeeping?
The difference between bookkeeping and accounting can be summed up with one word: detail.
Bookkeeping is the recording of financial transactions, which is just the first step in accounting. In short, an accountant is more involved with the financial side of business. They help advise on tax matters and other monetary issues, prepare financial statements for clients, provide auditing services (which include a review of a company's records), and can offer tax planning advice.
Bookkeepers keep track of all business transactions, whereas accountants summarize and analyze those transactions to give you a more complete picture of your company's financial health. Professional accountants perform a variety of tasks related to bookkeeping, but they also analyze and communicate financial information by preparing reports such as profit-and-loss statements or balance sheets
Bookkeepers primarily perform entry-level duties and may not have any formal education or training needed to do their job well; however, professional accountants must specialize in their chosen field (e.g auditing), which requires extensive study at an accredited university or college as well as a licensed Certified Public Accountant (CPA) certification by a governing body such as the American Institute of Certified Public Accountants (AICPA).
How do bookkeeping and accounting roles complement each other?
Bookkeeping and accounting are complementary processes. Bookkeepers record financial transactions, leaving the analysis for accountants. Accountants analyze financial data and prepare reports that help business owners make informed decisions about how to manage their company’s finances.
Accountants interpret the information collected by bookkeepers to create financial reports that provide useful insights into how well the business is operating overall and where improvements may be needed in order for them to become more successful in future years.
Do you need an accountant, a bookkeeper or both?
In short, an accountant is more involved with the financial side of business. They help advise on tax matters and other monetary issues, prepare financial statements for clients, provide auditing services (which include a review of a company's records), and can offer tax planning advice.
Accountants perform many more services than bookkeepers do. They work with tax laws and regulations, prepare financial statements for businesses, review the financial records of other businesses or organizations for audit purposes, and prepare tax returns. Accountants are also experts at spotting errors in the accounting process; they know how to detect frauds in your company's books or reports, whether it's intentional or accidental.
Bookkeepers focus more on day-to-day operations such as payroll management and vendor payments—the nuts and bolts of running a small business from an accounting perspective. Bookkeepers don't usually have advanced knowledge about taxes and are not trained to do audits.
Bookkeepers and accountants help support small businesses in different, but equally important, ways.
Accounting and bookkeeping are both essential to running a small business, but they do have different responsibilities. Accounting focuses on the financial side of things, which includes managing your company’s finances and keeping track of taxes. Bookkeeping, on the other hand, involves recording your financial transactions.
If you want more information about how these two roles complement each other or what it means for your business to have an accountant or bookkeeper by its side, reach out today!
Club Capital Is Here To Help
At Club Capital, we've got your back. We're not just accountants—we're small business owners too, and we know how tough it can be to stay on top of your company's finances when you're also trying to grow your business.
We want to make sure that your books are in good hands and that you have everything you need to know about the financial health of your company.
For the past 5 years, Club Capital has helped insurance agents better manage their agency's finances through best-in-class monthly accounting, CFO, and tax services. Schedule a demo today!