Some people tend to use the terms Bookkeeper and Accountant interchangeably. These two professions are connected but there are noticeable differences. When determining the type of services your business needs, be sure to understand who does what. Although these professions share similarities, your business will thrive better knowing the difference between the two.
Bookkeeping
In the past Bookkeeping was done by hand and it was considered a very tedious but important task. Considering the manual aspect, one can assume that there was a level of human error. Bookkeeping has started to slowly shift as technology continues to grow. The function of Bookkeeping includes:
Managing the books (ex: general ledger and bank accounts)
Recording transactions
Tracking income and expenses
Preparing and posting journal entries
Manage Accounts Payable & Receivable
Managing payroll
Today these tasks can be completed using software such as QuickBooks, Xero, Freshbooks, etc. As these functions are essential to running a business, you will need to have a system in place to ensure information is being updated or uploaded into the bookkeeping system as necessary. While electronic systems are not error-proof, they tend to be more efficient.
Bookkeepers aren't required to have a financial background, although experience in the field is a plus. They can however, become certified through the American Institute of Professional Bookkeepers. When people think of Bookkeepers, they think of data entry clerks but through experience, a Bookkeeper can grow to be an essential part of your business and the go-to person for the financial day to day tasks. As a business owner, it's not enough to have your financial information organized and entered into the system correctly. You need to understand what this financial information means for your businesses' overall financial health. This is where an Accountant comes in handy...
Accounting
The accounting function is a little more high level. Accountants are mostly known for their ability to analyze financial statements and supporting documents; this requires education and experience.
The type of educational background and designation that an individual has will determine their professional duties (Investopedia).
There's an ongoing debate as to whether a person is actually an accountant if they are not a CPA (Certified Public Accountant). Believe it or not, the answer to this depends on the state. I'm from New York, so that's the state I'm going to go with. To put it plainly, CPAs are accountants, but not all accountants are CPAs. Typically accountants must have a Bachelor's degree. They too can go on to become certified but certification is not required. However, ONLY a CPA can prepare audited and reviewed financial statements. If you are going to hire a professional accountant to assist you with your business finances, your expectations will determine the type of accountant you should hire.
A major difference between the two functions, is that Bookkeeping is mainly transactional and Accounting requires professional judgment. Some functions include:
Preparing and analyzing Financial Statements
Tax planning
Tax preparation
Completing income tax returns
Assist the owner in understanding profitability and cost management
What Does This Mean For Your Business? As an entrepreneur, you need a cohesive process that successfully merges bookkeeping and accounting.
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A successful marriage between bookkeeping and accounting will contribute to the long-term financial success of the business (Bench Accounting).
Some entrepreneurs choose to manage their business finances on their own and only bring in a professional periodically. If you're unsure of what's best for you, check out these few questions on knowing when it's best to enlist a professional.