Some people, including business owners, think that accounting and bookkeeping, as well as the accountant and bookkeeper, are the same things; therefore, use the terms "accounting" and "bookkeeping" interchangeably.
What is the difference between bookkeeping and accounting?
Bookkeeping is a part of the accounting process that engages registration and recording of the company’s financial transactions on a day-to-day basis.
The terms "accountant" and "bookkeeper" can be interchanged to a degree. Literally, the bookkeeper keeps the company's books and stores documentation about financial transactions. Bookkeepers start acting as data-entry clerks and grow through their merit and experience and merit.
The term "accounting" is much broader than "bookkeeping"; it means establishing control to be sure the company is working well and verifying and analyzing the recorded information. Accountants provide measuring the financial effects of the company's economic activity and report the financial values, performance, and condition to business managers, investors, and others who need this information.
Thus, accountants provide the internal control for the bookkeeping system, with the purpose to minimize errors in recording the activities which the company engages in for some period of time. The internal control that is performed by accountants is also required for detecting and deterring fraud, theft, embezzlement, and other dishonest behavior.
Today, modern computers and software technologies give bookkeeping and accounting new opportunities. All companies from small businesses to huge corporations use accounting software and bookkeeping software to manage and control their financial operations. Software solutions enable eliminating many bookkeeping and accounting tasks. But at the same time, computerization requires bookkeepers to have knowledge of debits and credits and a basic understanding of accounting, including the income statement and balance sheet.
The bookkeeper ensures that records of the company's financial transactions are up-to-date, correct, and comprehensive. Therefore, accuracy and thoroughness are absolutely necessary for bookkeeping as it provides financial data and other information on which accounts are prepared. Bookkeeping software enables excluding errors that could occur while amounts were manually entered, rewritten, or calculated. The main bookkeeper’s duty is to generate financial statements which will be used by accountants for accomplishing the legal and tax management at the time. These financial records are required by law and are critical to business success.
Accountants prepare financial statements and reports, including tax returns, based on the information and data collected while the bookkeeping process. Profit measuring is one of the critical tasks that accountants perform. The accountant takes a decision about the measuring expenses and sales revenue to be used for determining the loss or profit for the period of time. So, accountants create orders, bookkeepers follow those orders. In spite of all companies using bookkeeping and accounting software, the precision of the information recorded by bookkeepers continues to be critical.
For startups, founders need to understand their cash flow, strategic tax planning, profitability, and forecasting of the financial future of the new business. Depending on the organization, accountants could perform the duties of a bookkeeper too. Most small businesses don’t have the ability to have in stuff both a bookkeeper and accountant thereby the accountant could be tasked with bookkeeping duties, especially if they’re less experienced. Other small companies use the service of business consulting firms that help to keep financial transactions updated, prepare and pay the right taxes, run and manage the business smoothly without problems, and capitalize on the opportunities at right time.
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