Most people are hard-pressed to differentiate between bookkeeping and accounting, especially those who come from a non-commerce background. Many times, accountants are juxtaposed with bookkeepers, whereas ideally the bookkeepers’ work is the first step in the whole accounting process. Bookkeepers and accountants are both relevant when it comes to accurately communicating the financial activity, overall performance, and the existing financial condition of a business entity.
While bookkeeping and accounting are both essential business functions, there is an important distinction. Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for interpreting, classifying, analyzing, reporting and summarizing financial data. The biggest difference between accounting and bookkeeping is that accounting involves interpreting and analyzing data and bookkeeping does not.
Bookkeeping is the process of recording transactions on a daily basis in a consistent and honest manner. Because accounting software automates many of the processes, some bookkeepers in small organizations also classify and summarize financial data in financial reports. These bookkeepers are often referred to as full-charge bookkeepers. They are placed higher than bookkeepers but lower than accountants. Bookkeeping includes the following major functions to be performed by the Bookkeepers –
· Recording financial transactions daily
· Processing invoices, payments, receipts, general ledgers, etc.
· Accurately posting credits and debits daily
· Completing payroll related work
· Preparing financial statements
· Reconciling multiple accounts and creating reconciliation reports
· Managing AR and AP operations
· Calculating GST
· Lodging and preparing BAS
An Accountant’s work although overlaps many of the above-mentioned areas of expertise, still remains analytical and advisory in nature. Accountants analyze financial transactions in financial statements and business reports following accounting principles, standards and requirements. Accountants analyze and interpret financial data to report the financial condition and performance of the business to company leaders to help them make informed business decisions. An accountant can not only help in performing regular accounting tasks, but, based on the analysis of past performance, can also offer financial projections for your business and advise you on future financial elements that can affect your business. Services offered by Accountants include –
· Taxation planning and advise
· Business establishment assistance
· Account auditing
· Corporate financial reporting and compliance
· Advising on superannuation funds
· Financial management advice
· Setting up general ledgers
· Designing record keeping, archiving, and document destruction systems
· Creating budgets
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 the financial transactions. They may not have the education required to handle these tasks, but this is possible because most accounting software automates reports and memorizes 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. To work in accounting, you must have at least a bachelor’s degree to become an accountant or, for a higher level of expertise, you can become a certified public accountant. 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 analyze the financial data.
Most businesses are unsure of whom they actually need. There are many differences between an accountant and bookkeeper, and in certain cases, distinguishing between both as far as certain business operations are concerned is not an easy task. More often than not, it depends on several different factors such as –
· What industry does the company belong to?
· Does the company need to maintain a large number of fixed assets?
· Does the company have a large amount of inventory?
· How many employees do they have working for them?
The more complex an organization, the more important it is to have a good CPA team supporting the bookkeepers, as their work go hand-in-hand. It also ensures there are fewer discrepancies in accounting. At the same time, a CPA is more expensive to be retained permanently as compared to bookkeepers, who on the other hand, are ideal for small businesses that need regular, but non-significant attention to their accounting records.
Overall, bookkeepers are ideal when it comes to managing expenses, but having the periodic support of an accountant ensures someone with an analytical mind keeps an eye on how your business is doing. This not only helps in keeping your records straight, but also acts as a deterrent against financial theft and fraud.
TAGS-:ACCOUNTANTS V/S BOOKKEEPERS
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