How are Accountants and Bookkeepers Different? Why are Both Essential for Healthy Organizations?

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If you run a business, you will certainly have heard of the terms bookkeeping and accounting. But do you know what they mean and how they differ? In this brief explainer, we will discuss the main differences between bookkeeping and accounting, and why both are essential for your business' success.

We will also focus on why organizations tend to hire bookkeepers online.

 

Bookkeeping vs accounting: an overview

Bookkeeping and accounting are both related to the financial management of a business. However, they have different functions and scopes. Bookkeeping is the process of recording and organizing all the financial transactions of a business in a systematic way- in alignment with existing norms.

Accounting is more analytical and is the process of analyzing, interpreting, and reporting the financial information of a business to various stakeholders. It's more expensive and this is one reason why many companies across the US opt for remote bookkeeping services in India and other countries.

Bookkeeping is part of accounting, and accounting has a far broader scope than bookkeeping. Bookkeeping is more focused on the accuracy and completeness of the financial records, while accounting is more concerned with the meaning and implications of the financial data.

 

Bookkeeping vs Accounting: key differences

Here are some of the fundamental differences between bookkeeping and accounting:

A. Education and skills: Bookkeepers usually have a high school diploma or an associate degree in accounting or business administration. They need to have good numerical skills, attention to detail, and familiarity with accounting software. Accountants usually have a bachelor's degree or a higher qualification in accounting or finance. They need to have analytical skills, problem-solving skills, and knowledge of accounting principles and standards.

These skillsets and education levels are far more common in South Asian countries, one reason why bookkeeping outsourcing to India has taken off in the last few decades.

B. Roles and responsibilities: Bookkeepers are responsible for recording and classifying all the financial transactions of a business in the original books of entry, such as journals and ledgers. They also prepare bank reconciliations, trial balances, and financial statements. Accountants are responsible for reviewing and verifying the financial records prepared by bookkeepers. They also prepare adjusting entries, tax returns, budgets, forecasts, and financial reports. Accountants may also provide advice and guidance to business owners on financial matters.

C. Certification and regulation: Bookkeepers do not need to be certified or licensed by any regulatory body. However, some bookkeepers may choose to obtain voluntary certification from professional organizations, such as the American Institute of Professional Bookkeepers (AIPB) or the National Association of Certified Public Bookkeepers (NACPB). It is difficult getting certified by these super-prestigious bodies, yet another reason why companies outsource bookkeeping services to India in its entirety.

Accountants might need to be certified or licensed by state boards or national organizations, depending on their specialization and practice area/s. For example, certified public accountants (CPAs) are licensed by state boards of accountancy and regulated by the American Institute of Certified Public Accountants (AICPA).

D. Scope and complexity: Bookkeeping is more linear and repetitive than accounting. Bookkeepers follow established rules and procedures to record and classify financial transactions. Accounting is more complex and a lot more dynamic than bookkeeping, and requires several years of expertise and experience.

Its inherent simplicity helps major corporations decide on when to avail of outsourced bookkeeping in India.

Accountants apply their professional judgment and expertise to analyze and interpret financial data. Accounting also involves making decisions and recommendations based on the financial information.

 

Bookkeeping vs Accounting: real-life examples

To illustrate the difference between bookkeeping and accounting, let's look at some of the most typical tasks performed by bookkeepers and accountants.

- A bookkeeper records the sales invoices issued by a business to its customers in the sales journal.

- An accountant analyzes the sales revenue reported by a business and compares it with its budgeted targets.

- A bookkeeper records the purchase invoices received by a business from its suppliers in the purchase journal.

- An accountant calculates the cost of goods sold by a business and determines its gross profit margin.

- A bookkeeper records the cash receipts and payments made by a business in the cash book.

- An accountant prepares a cash flow statement for a business and evaluates its liquidity position.

- A bookkeeper prepares a trial balance for a business at the end of an accounting period. Something as mundane and routine can be an extra cost overhead and it can be reduced once you hire bookkeepers from India.

- An accountant prepares adjusting entries for a business to correct any errors or omissions in the trial balance.

- A bookkeeper prepares financial statements for a business based on the adjusted trial balance.

- An accountant audits the financial statements of a business and expresses an opinion on their fairness and accuracy, plus transparency.

 

Why are both bookkeeping and accounting crucial for businesses?

Bookkeeping and accounting are both essential for your business success. Here are some of the top benefits of having accurate and reliable bookkeeping and accounting systems:

- Compliance: Bookkeeping and accounting help you comply with various legal and tax obligations, such as filing tax returns, paying taxes, maintaining proper records, reporting financial information, and in-house auditing- among others.

Occasionally, you might have to hire bookkeepers online to make the process quicker.

- Control: Bookkeeping and accounting help you monitor your business performance, track your income and expenses, manage your cash flow, prevent fraud and nip illegalities in the bud.

- Decision-making: Bookkeeping and accounting help you make informed decisions about your business strategy, goals, plans, investments, etc., based on relevant, reliable, and updated financial data.

 

How are accountants and bookkeepers similar?

Despite their differences, accountants and bookkeepers have some similarities as well. Both professions deal with financial data and help businesses manage their finances. Both professions require attention to detail, accuracy, organization, and communication skills. Both professions also use software & special tools to facilitate their work and stay abreast of the latest accounting standards and regulations.

Another similarity is that both accountants and bookkeepers can work in various industries and sectors, such as retail, manufacturing, healthcare, education, government or nonprofit. They can also work as employees or as independent contractors, depending on their preferences and opportunities. Being a region-agnostic profession, you can consider and outsource bookkeeping to India and the APAC and SE Asian countries.

 

Can accountants and bookkeepers work together?

Accountants and bookkeepers can certainly work in tandem to provide comprehensive financial services to businesses. By collaborating with each other, they can ensure that the financial records are accurate, complete, and consistent. They can also share insights and recommendations on how to improve the financial performance and efficiency of the business.

From recording transactions of a business on a regular basis and sending them to an accountant at the end of each month or quarter, and then having the accountant review the details and then preparing the financial statements and filing tax returns-it comes full circle.

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