What is accounting how does it differ from bookkeeping

The more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.

The complexity of a bookkeeping system often depends on the size of the business and the number of transactions completed daily, weekly, and monthly.

All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The IRS lays out which business transactions require supporting documents on their website. Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial models. A key part of the accounting process is analyzing financial reports to help you make business decisions. The result is a better understanding of actual profitability and an awareness of cash flow in your business.

Accounting turns the information from the general ledger into insights that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, analysing their financial position, forecasting, and tax filing.

Bookkeepers and accountants sometimes do the same work, but have a different skill set. To be successful in their work, bookkeepers need to be sticklers for accuracy, and knowledgeable about key financial topics. Accountants, unlike bookkeepers, are also eligible to acquire additional professional certifications. For example, accountants with sufficient experience and education can obtain the title of Certified Public Accountant CPA , one of the most common types of accounting designations.

To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a professional accountant. To help, we've created a Making Tax Digital summary sheet for you to use whenever you feel necessary. Download your very own copy below.

Enjoying the blog? Subscribe Guides. What is Bookkeeping? What is Accounting? After assessing the findings, accountants help businesses make informed decisions. Typical Bookkeeping Duties Processing and maintaining a payroll system. Processing invoices.

Preparing initial financial statements. Processing receipts, payments and other financial transactions. Recording business transactions. Managing accounts receivable and accounts payable. Processing expense claims.

Filing and document management. Chasing customers for payment. Posting journal entries. These bookkeepers are often referred to as full-charge bookkeepers. They make higher salaries than bookkeepers but lower salaries than accountants.

Accountants analyse financial transactions in financial statements and business reports following accounting principles, standards and requirements. Accountants analyse and interpret financial data to report the financial condition and performance of the business to company leaders to help them make informed business decisions.

Since bookkeeping and accounting are categorised as two distinct processes, it only makes sense that they would differ in their ultimate objectives as well. The primary objective of a bookkeeper is to record all financial transactions logically and systematically accurately.

Generally speaking, bookkeepers record such financial activity chronologically. They use one of two major record-keeping systems, which we will discuss in further detail later on. The main goal of an accountant is to determine the financial status or well-being of the company and pass this information on to the key stakeholders. Thus, accountants are not primarily concerned with the day-to-day tasks of bookkeeping although these are essential but are instead focused on the analysis and interpretation of all the financial data that has been compiled.

Bookkeeping and accounting can appear to be the same profession to the untrained eye. Both bookkeepers and accountants work with financial data. To enter either profession, you must have basic accounting knowledge. Bookkeepers in smaller companies often handle more of the accounting process than simply recording transactions. They also classify and generate reports using financial transactions. They may not have the education required to handle these tasks, but this is possible because most accounting software automates reports and memorises transactions making transaction classification easier.

Sometimes, an accountant records the financial transactions for a company, handling the bookkeeping portion of the accounting process. Taking a few accounting courses and developing a basic understanding of accounting will qualify you for a job in bookkeeping. The difference between these two careers is mainly in education and responsibility.

Accountants are responsible for more of the financial aspects of a company than a bookkeeper is. While a bookkeeper typically handles where the money comes in and goes out, an accountant is responsible for almost every aspect of the finances.

They can handle taxes, assess risk, or make reports. An accountant can work in many different places, like government agencies, financial institutions, and tax agencies. Bookkeepers, on the other hand, usually work for smaller companies. Larger companies and institutions have more use for an accountant. Just a high school diploma and some knowledge about math can get you in the door when it comes to bookkeeping. Many bookkeepers go on to become accountants. Accountants must at least have an undergraduate degree, and higher positions may require more.

Careers in the financial world are only continuing to grow as companies, their money, and the economy grows as well. Accountants and bookkeepers help companies keep their finances on track and succeed.

No matter the difference between accounting and bookkeeping, each one requires good math skills, attention to detail, and superior dedication. An accountant is in charge of assessing and interpreting the financial data of a company, and for reporting on it. An accountant usually has a degree or certification CPA and is paid better than a bookkeeper.

Typically, a bookkeeper reports to the accountant. The information a bookkeeper is responsible for gathering and managing affects how an accountant will interpret the financial information of the company. Accountants are qualified to handle the entire accounting process, while bookkeepers are qualified to handle recording financial transactions. To ensure accuracy, accountants often serve as advisers for bookkeepers and review their work.

Bookkeepers record and classify financial transactions, laying the groundwork for accountants to analyse the financial data. The duties of a bookkeeper vary, depending on the company. Here is a breakdown of the responsibilities typically associated with a bookkeeping role:.

A bookkeeper also must keep the information he processes confidential, as he will be privy to sensitive financial information, including payroll salaries. The roles of accountants and bookkeepers vary from business to business.

Bookkeeping and accounting have been in existence since a very long time, and both fields have seen a tremendous amount of change in the way the operations are carried out. This trend will continue similarly in the future too. Some of the upcoming trends in the field of accounting and bookkeeping include:. The line between accounting and bookkeeping is slowly diminishing. It is interesting to note that with the advent of accounting and bookkeeping software, some parts of accounting are slowly absorbed into the bookkeeping process.

At the same time, bookkeeping software is now capable of generating financial statements which were earlier part of the accounting process. While most businesses will still need a bookkeeper to keep the books, bookkeeping will become a lot more than just data entry, balancing bank ledgers, and reconciling bank statements.

These functions will slowly diminish in the coming years and may even become obsolete, as most of the tasks will be handled by bookkeeping software. Newer technologies have persuaded bookkeepers and accountants to be open to technological advancements and explore emerging software options.

It is an opportunity for bookkeepers to support their clients through this change, presenting value-added services such as payroll processing, credit card reconciliation, etc.