Ambiguity of bookkeeping and accounting:
It is challenging to clear up the enigma of bookkeeping and accounting and how the contrast arises between them. You cannot know the isolation between them unless you are a bookkeeper, accountant or directly involved with them. Both of these activities deal with financial data and its management. Some small businesses even merge these activities in one area, that handles both bookkeeping and accounting.
Bookkeeping and accounting vary from each other in many ways. Bookkeeping is the initial step in accounting. This involves the posting of daily financial data or financial transactions in the business accounting systems such as individual ledgers, cashbooks, bankbooks, and other accounting streamlines. Bookkeeping is, therefore, tracing financial transactions that can explore how much finance is entering into and leaving the company. This also gives a glance at what and when is owed to others, what and when is owed by others to the business and how strong are the numbers of business performing. Accounting rolls in when the process is needed to be carried forward. Accounting is the further process of reorganizing the bookkeeping data into practical information which can help the executive management of the company to take decisions. Data gathered by bookkeepers is analyzed and processed to extract convenient reports.
Difference between bookkeeping and accounting:
From the above narration of bookkeeping and accounting, the major difference between these two terms is clear. We will discuss further differences in the following segment. This chart is courtesy of one of the top bookkeepers in the US, AD Bookkeeping Services:
|Bookkeeping involves the recording of financial transactions in the accounting system of the business.||Accounting is the issuance of useful financial reports based on data prepared in bookkeeping.|
|Bookkeeping is the basic preparation of bank reconciliation statements and general ledgers by daily transactions.||General ledgers prepared by the bookkeeping is used to produce coherent financial statements.|
|Income, expenses, cash outflows, cash inflows are recorded through bookkeeping making it ready for tax calculations and tax filing.||Accountants calculate and file tax returns on the basis of raw data organized by the bookkeepers.|
|Data prepared by bookkeepers are not used for the decision making process.||Accountants process data prepared by bookkeeping to assemble appropriate reports which are used to make critical decisions for business grow.|
The separation line between accounting and bookkeeping was more active a decade ago. With the advanced abilities of accounting software, these activities are difficult to differentiate. The day to day advancements in accounting software has consolidated the duties of bookkeepers and accountants. Accounting soft wares such as Xero, QuickBooks, and others are proceeding towards providing more useful reports that are prepared by accountants.
Benefits of having a bookkeeper rather than accountant:
The following section will highlight why it is more beneficial to use bookkeepers instead of accountants:
Accountants such as CPAs’ leading role is preparation and filing of tax returns. However, the accounting software has made it possible to file tax returns without the need for accountants. A bookkeeper can file tax returns as long as they have the authority. This curtails the need for accountants and thus higher costs of accountants are saved by the business.
Advanced bookkeeping soft wares have made it possible to prepare financial reports and financial statements. This has minimized the need for accountants for the business. Financial statements prepared by bookkeeping software are still presentable to stakeholders.
For small businesses, it is more beneficial to hire bookkeepers rather than accountants because of the quick preparation of financial statements by bookkeeping software. Multiple reports along with financial statements can be provided on the go, to executive management.
Bookkeeping can provide more detailed information about the financials of the company as compared to accountants. Time length along with other accurate and precise figures are extracted with a single click.