Growing businesses often need professional support to manage financial operations. While the founder may be able to navigate these tasks in the early days, there comes a point when they need expert guidance to ensure reporting compliance, receive strategic advice, and make data-driven decisions that help the organization reach its financial objectives.
At this point, do you need to hire a bookkeeper? An accountant? Both? While there can be some overlap in their functions, accountants and bookkeepers often play two distinct roles for businesses.
If you’re still not sure what is the difference between bookkeeping and accounting, and which one you might need to hire for your business, you’ve come to the right place. In this article, we’ll provide an overview of each position, the differences and similarities between them to help you make the right hiring decisions.
What Is Bookkeeping?
Bookkeeping is the professional practice of recording financial transactions for a business. It’s a critical record-keeping function for an organization, and it lays the foundation for the rest of its financial operations.
As we’ll lay out below, the main responsibilities of bookkeepers are to keep accurate records of daily transactions, whether recording them in a software program or in a physical ledger.
Core responsibilities
Here’s a quick look at some of the main duties that bookkeepers are responsible for:
- Recording financial transactions. Bookkeepers make journal entries to keep track of the day-to-day transactions that occur for an organization and record which accounts are impacted.
- Organizing receipts and invoices. These professionals collect and manage supporting documentation for business transactions, including vendor invoices, order receipts, and more.
- Maintaining the general ledger. Bookkeepers consistently update the general ledger to provide a comprehensive record of all financial transactions.
- Reconciling bank statements. They may also be responsible for reconciling bank statements to financial records to ensure their accuracy and completeness.
- Managing accounts payable and receivable. Bookkeepers manage outgoing payments to suppliers (payables) and collect payments from customers (receivables) in a timely manner.
Tools and software used for bookkeeping
In the digital age, a large portion of bookkeeping is handled within software solutions. Teams may rely on one comprehensive platform to automate transaction recording, reconcile bank accounts, and run payroll. Or, teams may rely on several specialized tools, like an expense tracking app or invoicing software, to support their needs.
Some of the popular options for comprehensive bookkeeping software include:
- QuickBooks Online
- Xero
- Zoho Books
- Freshbooks
- Wave
- NetSuite
- Sage 50 Accounting
At Bob’s Bookkeepers, we deliver expert outsourced bookkeeping services. The team is well-versed in the leading software programs, allowing us to seamlessly integrate into your operations.
Our plans are tailor-made for small businesses, delivering cost-effective and scalable solutions to support your financial management needs.
What Is Accounting?
Accounting is the process of analyzing, reporting, and interpreting financial data. Accounting professionals help organizations make sense of their financials, meet reporting requirements, and assist with potential audits, tax filing, and other financial decision-making.
Accountants work with businesses to assess their financial health and create and implement strategies to improve their positioning. They often play an advisory role, helping organizations with high-level financial goals and long-term strategic planning.
Core responsibilities
To get a better understanding of what accounting entails, here’s a quick summary of their typical duties:
- Preparing financial statements. Using general ledger data, accountants prepare financial statements to meet reporting requirements and adhere to applicable accounting standards.
- Analyzing financial data. Accountants assess financial data to uncover insights into current performance, pinpoint ongoing trends, and identify future opportunities to drive better business results.
- Ensuring compliance with tax laws and regulations. Licensed tax accountants ensure tax compliance by making required filings on the business’s behalf and taking advantage of applicable credits and deductions to reduce their overall tax liability.
The role of accountants in decision-making and strategy
Accountants play a direct role in a company’s overall financial strategy and decision-making. They provide expert analysis of financial data and operations to help teams assess what areas they need to improve, where they excel, and how they can drive better performance.
Depending on the company and industry, this may involve cost analysis, tax planning, trade spend management, budgeting, and more.
Key Differences Between Accounting and Bookkeeping
Both accountants and bookkeepers play an important role in a business’s financial operations. However, the two differ in terms of their credentials, scope of work, and typical responsibilities, which we’ll highlight in further detail below.
Scope of Work
One of the key differences between accounting and bookkeeping is the nature of their work. In general, bookkeepers are focused on day-to-day operations, keeping accurate records of business transactions as they occur.
In contrast, accountants take more of an advisory or strategic role, helping businesses interpret their financial data and inform future business activities. They may take a broader, more long-term view of the company’s financial operations.
Accountants’ work may be focused more on compliance with tax and reporting guidelines rather than entering transactions into accounting software and reconciling accounts, like bookkeepers.
Credentials
In general, bookkeeping doesn’t require the same level of education or training as accounting.
To become a Certified Public Accountant (CPA), for instance, professionals typically need to have a bachelor’s degree and complete a certain number of credit hours before sitting for the exam. The CPA certification allows them to conduct external audits and represent taxpayers with IRS audits, which non-licensed accountants are not permitted to do.
There are certifications that a bookkeeper can pursue, like the one offered through the American Institute of Professional Bookkeepers (AIPB). However, this typically isn’t required for bookkeepers, like the CPA license often is for accountants.
Skill Levels
While bookkeeping and accounting functions are based on many of the same financial principles, accountants typically handle more complex and analytical tasks.
Given that these professionals tend to complete a higher level of education and training, they may be better equipped to handle more advanced workflows, including tax filings, audits, and adjusting journal entries.
This isn’t to say that bookkeeping is a low-skill function. It requires specialized knowledge of basic financial accounting concepts, AR and AP management, and more to ensure the accuracy and completeness of the general ledger.
Tools and Methods
Accounting and bookkeeping professionals may rely on different sets of tools and techniques to deliver their services.
For instance, bookkeepers may be more familiar with software programs that help them record and organize daily transactions, process vendor payments, and manage customer invoices.
On the other hand, accountants may require more advanced solutions to support financial analysis, budgeting, and tax planning.
Similarities Between Bookkeeping and Accounting
As mentioned throughout, there are plenty of differences between accounting and bookkeeping. However, there are also a number of similarities, and functions between these two professions may overlap, depending on the company.
At the most basic level, both types of professionals deal with a company’s financial data. While they may have different objectives and responsibilities regarding this data, both bookkeepers and accountants are concerned with the company’s financial success.
Factors to consider when choosing between bookkeeping vs. accounting services
If your team is at the point where you need external support for financial operations, you may be unsure whether you need to bring an accountant or a bookkeeper on board. Consider the following factors to help you make the right decision for your business's needs.
Business size and complexity
Businesses in the early stages of development may decide to hire a bookkeeper to handle daily record-keeping tasks and AP/AR management. Doing so removes these responsibilities from the founder’s or other team members’ plates, giving them more time to focus on more strategic work.
A growing business that already has a bookkeeper or is comfortable handling these tasks internally may decide to hire an accountant to take care of more strategic work, like budgeting, financial statement preparation, and tax planning.
This may also be necessary for companies with more complex business models that require expert support to ensure compliance with accounting standards.
Budget constraints
Given the scope of work and certifications associated with accounting, the rate for accounting services is likely higher than that of bookkeepers. In other words, it may be more cost-prohibitive for teams to hire an accountant.
Thus, teams that are operating on a tight budget may opt to hire a bookkeeper first instead.
Long-term financial goals
Businesses that have clear long-term financial goals may need to hire both an accountant and a bookkeeper.
This way, they’ll have financial records that are accurate and complete from the bookkeeper, but they’ll also get the expert guidance, tax support, and advice they need to reach their financial goals from the accountant.
The good news is that the team at Bob's Bookkeepers offers both accounting and bookkeeping services, providing scalable, comprehensive support for your financial operations.
Conclusion
At a certain point, nearly all businesses will need support from both bookkeepers and accountants. However, in the early stages of growth, certain teams may have a greater need for one over the other, depending on internal resources, financial goals, and other requirements.
Knowing the key differences between these two professionals can help you make the best hiring decision for your business.
If you’re still not sure which type of support you need, speak with one of our experts to discuss your options.
