The Difference Between Bookkeeping and Accounting
Why hire a financial professional?
As a business owner, it is essential to keep your financial data current and accurate to make well-informed business decisions. Business owners often receive the advice that they should have a financial professional managing cash flow. But it is not always clear what role will best serve the company. A business owner will need to choose between a bookkeeper and an accountant but many people use these terms synonymously. However, some key differences will determine what type of financial professional is best for your business. Insight into these roles empowers an executive to make the decisions needed to grow a stable business. So, make sure you are taking the time to understand the key differences between bookkeeping and accounting to have realistic expectations before hiring.
What is bookkeeping?
The term “bookkeeper” can be taken quite literally. Meaning, this is the person that retains documentation for transactions. Bookkeeping is the process of recording day-to-day transactions. A crucial aspect of this task is maintaining a general ledger with amounts from sales and expense receipts as a way of recording and categorizing financial transactions. Other responsibilities include posting credits and debits, completing payroll, sending invoices, and ensuring the bills are paid on time. A successful bookkeeper will pay immense attention to detail and is knowledgeable about vital financial topics and because this person is closely involved in the finances of your business, they will also be able to provide immediate financial advice. A bookkeeper is a key to maintaining good economic patterns, and the financial information that is compiled from a bookkeeper then allows an accountant to take that information and create financial models.
What is accounting?
Accounting is a high-level process that analyzes the finances of an organization from a bigger picture. This process is more subjective than bookkeeping, which is primarily transactional. Accounting is comprised of preparing financial statements such as a balance sheet, incomes statements, cash flow statements, and the owner’s equity statement. And an accountant will analyze the cost of operations, complete income tax returns and prepare adjusting entries. This role will aid the business owner in understanding the impact of all financial decisions on a grander scale than a bookkeeper. The process of accounting provides reports that will bring insight into financial indicators and how they influence strategic planning and financial forecasting.
Which of these should I hire for my business?
Understanding the difference between a bookkeeper and accountant still leaves the business owner with the question of what role best suits the needs of the organization. And many times, the decision is dependent on the industry and the level of expertise required. Variables such as the industry, the number of fixed assets, the amount of inventory, and the number of employees all play a role in what is needed. An accountant will look at the big picture of the company’s finances, where a bookkeeper will handle daily transactions. When hiring for a financial role at your company, think about what type of support is needed. Additionally, consider what insight you are hoping to gain from the person at this role. Keep in mind that these two positions also work together. Properly organized finances from the bookkeeper paired with financial strategy from the accountant contribute directly to long-term success.
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