A majority of small and medium scale business owners are not sure about the difference between accounting and bookkeeping services. However, being one of them it is imperative that you understand this difference, as this will help you in hiring the right professional for business advice. Additionally, it will help you have an idea as to what to expect from each of them.
Knowing the Basics
People often use the words “Accounting” and “Bookkeeping” interchangeably and there is a good reason for this. Accountants and Bookkeepers work close together to serve their clients. They are tasked with the important responsibility of business reporting and ensuring its’ financial well-being. Moreover, both of them do not find time for even themselves during the tax season.
However, there do exist differences between accounting and bookkeeping services, most of which have become increasingly blurred. Factors like advances in technology and shift in business strategies have forced bookkeepers to take on roles traditionally managed by accountants. Similarly, accountants also have branched off into several different areas of the business to help them make financial management easier and effective.
Responsibilities being held:
Bookkeeping involves managing day-to-day financial transactions in a business. Bookkeepers are held in charge of recording these transactions into accounting software like Quickbooks, reconciling bank statements, producing monthly financial statements for reporting and more. They also offer support in back-office functions including invoicing, bill payments, and payroll processing, etc.
Accountants nowadays have taken more of an advisor role in business. There is a strong demand for these professionals in banks and governmental agencies as they provide regular insights into the financial health of a business. Accountants work on business planning using the financial statements prepared by a bookkeeper. Using these statements they can offer valuable insights to help businesses grow their potential as well as capital.
Bookkeeping vs. Accounting
It’s not necessary for a business to always have an accountant or a bookkeeper. Both of them have their own significance.
Bookkeepers and accountants both offer strategic business advice to business owners. Where a bookkeeper can assist you in streamlining business processes and create a lean budget, an accountant will suggest ways to minimize tax liabilities and decide what to incorporate in business.
Bookkeeping services help clients with the detailed aspects of business operations and accounting is more tax focused.
The Role transition
Advances in technology have changed the way businesses work. This change has also induced a shift in accounting and bookkeeping services. Automation in accounting has helped streamline the bookkeeping functions dramatically. Bookkeepers feel relieved from much of their traditional functions like data entry, which has let them take on the advisory roles. Moreover, since bookkeepers understand their clients’ business in detail, this shift makes intuitive sense.
With a single goal to recommend the best possible technology stack for varied client needs, bookkeepers have started to invest their time in training on new business solutions. This has become possible with the options for accounting tools and financial software being on their ever-high.
Accountants are no behind in this race. They are also on a pursuit to devise innovative ways in which they can make their client’s business profitable. With the tax code ever-complex, tax resolution has become an area of focus for a majority of them. Accountants understand the business’s financial situation very well. This has led them to transition into becoming tax coaches and certified financial planners.
As the line between bookkeeping and accounting becomes less defined, some states have started to impart restrictions on who can call themselves an accountant and who a bookkeeper. The eligibility criteria in some states require an individual to be a CPA to be referred to as an accountant. Whereas, to be called a bookkeeper, a degree in accounting is all you that you need.
There are some states where no qualification or certification is required to use the term “Accountant”. Therefore, it becomes important to ask the financial services provider what kind of roles they will be performing for you.
Many small and medium scale businesses do not choose between an accountant and bookkeeper and simply hire both.
Bookkeepers are on the base level, managing the day-to-day transactions and looking out for changes to the business or financial events that need to be addressed immediately. They act as the eyes and ears for a business and have the skills to determine when it needs a level of service or expertise that only accountants can provide.
The Bottom Line
Businesses perform much better when they have a complete picture of their finances. Bookkeepers and accountants each have a different perspective towards a business’s financial well-being. Having both a bookkeeper and an accountant in your team will help ensure that you receive the best advice for your business.
Accounting and bookkeeping services do not necessarily have to be an either/or proposition. Both of these functions work hand in hand, thereby, helping businesses become more profitable. Having the perspectives of both will help you get a holistic view of your finances while setting your mind at ease and freeing up energy to do what you love the most—running your business.