What Is The Difference Between Bookkeeping And Accounting?

Accounting and bookkeeping are both essential financial practices for any business. The terms ‘bookkeeping’ and ‘accounting’ are often used interchangeably, but they actually refer to two different things. An accountant may also provide bookkeeping services, but not all bookkeepers are accountants.

As a business owner, it is important to hire the right person for looking after the financial affairs of the business. So to learn more about the difference between bookkeeping and accounting, we got in touch with CPA Adam Valdez who offers both accounting and bookkeeping services in San Antonio.

What Is Bookkeeping?

 Bookkeeping is the process of recording all the financial transactions of a business, and accounting is the process of interpreting, classifying, and summarizing those transactions to provide decision-makers with useful financial information.

A bookkeeper will typically record transactions in a software program like QuickBooks. These transactions are related to cash received or paid by the business, sales, and purchase invoices, wages disbursed, expenses and incomes, inventory levels, etc.

It is a critical task to keep track of money going in and out of business and determine profitability. So bookkeeping is considered to be the foundation of accounting as other financial functions cannot take palace without proper records.

What Is Accounting?

Accounting is the systematic method of documenting, measuring, and conveying information about a company’s financial transactions. It assists a firm in making immediate and long-term decisions and conveys a company’s financial condition to its stakeholders and the market. It also helps with tax planning, budgeting, and strategizing the future of business.

Only accountants, such as those at AdviseRE Tax, can perform statutory audits or sign tax forms and financial statements of a company. They also act as strategic partners to a business and are involved in key decision-making processes. If you are running a business in Toronto, accountants can also provide more specialized services such as business valuations, risk assessment, and fraud detection. Working with a trusted Toronto Tax Accountant will ensure that your business is financially sound and compliant with all regulations. Whether you’re a small business owner or running a large corporation, having a good accountant by your side is a must.

Most people assume bookkeeping and accounting are the same things and there are a few reasons why. All bookkeeping and accountants study accounting principles and work with the financial data of an organization.

They both work in the same department and may often assume each other’s roles if not restricted by statutory law. In many small businesses, the accountant also assumes the role of bookkeeper due to limited funds.

In terms of education too, both accountants and bookkeepers undergo the same basic training to understand the basics of bookkeeping and accounting. By gaining further knowledge in the field, a bookkeeper opts for accounting as a career.

The Differences Between Bookkeeping And Accounting

  1. While bookkeepers record daily expenses and payments, accountants record adjustment entries to balance the ledger accounts.
  2. Bookkeepers make monthly financial statements for sales and purchases while accountants prepare and review annual financial statements like balance sheets and profit/loss statements to make forecasts and business decisions.
  3. Bookkeepers maintain various books of accountants like journals and ledgers while accountants review them to perform statutory and tax audits.
  4. Bookkeepers only record taxes paid and received while accountants advise business owners on tax planning to improve profit margin.
  5. Bookkeepers maintain payroll and disburse wages while accountants decide annual budgets for wages based on the cost of operations and profit margins.
  6. Bookkeepers may prepare bank reconciliation statements and cash flow statements whereas accountants analyze such statements to form important financial decisions.
  7. Bookkeepers record information while accountants use this information to get insights into the financial position of a business so that business growth, expansion, or downsizing can be carried out.
  8. Bookkeepers can prepare income tax returns but only certified public accountants(CPAs) can sign them.

Which One Do You Need For Your Business? Accountant or Bookkeeper?

Bookkeeping is the process of recording all financial transactions, while accounting is the process of analyzing, interpreting, and reporting financial data. Bookkeepers usually don’t have experience in accounting but accountants are trained to do more than just keep track of the numbers. They use their skills to advise businesses on financial decisions, tax planning, and risk management.

In order to become a certified accountant, one must pass the Certified Public Accountant (CPA) exam and get a license from the state.

So, if you are looking for someone to just keep track of your business’s financial transactions, a bookkeeper will suffice. But if you need someone to help you make sense of all the data and provide insights on how to improve your business’s finance, you need an accountant.

If you don’t wish to hire a full-time bookkeeper or accountant, you can outsource these services to freelancers and agencies. Adam Valdez CPA is one of the best accounting firms in San Antonio, Texas.  They specialize in working with small to medium-sized firms and offer various services outside of bookkeeping and accounting such as estate planning, payroll processing, etc. So call up their office today or visit their website to schedule a consultation and get a quote for a customized service based on your financial needs.