What is the difference between bookkeeping and accounting and why should I care?

There is a common general assumption that the role of a bookkeeper is similar to that of an accountant. This is understandable, as bookkeeping and accounting both deal with financial data and are often interlinked. However, though they are related, there are subtle but important distinctions to be made between the two. Let’s unpack this, shall we?

The Theoretical Differences

Bookkeeping is exactly what it sounds like: it is the keeping of financial records in books. Of course, in this modern age, books here could mean anything from an actual book/ledger to accounting software online. The main responsibility of a bookkeeper in a business is to record its daily financial transactions consistently and accurately. This helps to ensure that bills are paid and money is received on time. Bookkeeping is thus a relatively straightforward process, primarily requiring that bookkeepers have a good eye for detail and a solid grasp of basic accounting knowledge.

Accounting, on the other hand, requires a more in-depth knowledge of accounting principles, as it constitutes the interpretation, summarization and reporting of data produced through bookkeeping. Accountants thus require a higher level of educational certification in accounting compared to bookkeepers, and will earn a correspondingly higher salary. There are many different types of accounting – managerial, financial, forensic, tax, project, etc. In general, however, an accountant’s role consists of turning the hard numbers recorded by a bookkeeper into subjective information about where cash is flowing in the business and possible steps to take to increase profitability. Accountants are thus equipped to make best-practice recommendations to businesses on how to reduce costs, increase revenues and maximize profits in general. Find out related information here.

The Practical Similarities

In theory, it is easy to distinguish between the two. In practice, however, bookkeeping and accounting often overlap and complement one other. This is because bookkeeping lays the groundwork for the accounting process. If a bookkeeper fails to produce organized financial records, accountants would be unable to effectively deliver on their financial forecasting and strategic tax planning. Thus, accountants and bookkeepers often have to work closely together, and in some cases the boundaries between the two roles may blur quite a bit. Accountants, for example, are generally in charge of overseeing the bookkeeping, and may end up responsible for designing, setting up, and managing the bookkeeping system. Bookkeepers, in the meantime, can be capable of handling more of the accounting process, since modern bookkeeping software are equipped to perform tasks like building financial statements.

Why Does This Matter?

From this, one can see how both bookkeeping and accounting play absolutely vital roles in every business. However, some businesses – in particular, small ones – may not pay as much attention to bookkeeping and accounting as they should. Earning money may seem more urgent than recording where the money is flowing. Generating profit in the short term may distract business owners from strategically planning for the long term. It is advisable that business owners do not make this mistake, as it can lead to more trouble than it is worth. Hiring a good bookkeeper from a reputable company like Bookkeeper Melbourne (www.Bookkeeperco.com.au) is a cost that will pay off down the road.

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