Accounting vs Bookkeeping: Leading Differences

While you may be contemplating the difference between accounting and bookkeeping, many of us are uninformed and, therefore, consider them identical. But large corporations are well-informed, and therefore, they, most of the time hire both an accountant and a bookkeeper separately. Nonetheless, an accountant is an integral and indispensable part of a business; the services of a bookkeeper can’t be undervalued, either.

In general, a bookkeeper’s role involves recording transactions and keeping businesses financially organized. On the other hand, an accountant provides consultation and analysis and is more qualified to advise on tax matters and help in decision-making.

What is Bookkeeping?

Firstly, it’s important to understand that bookkeeping is a small aspect of accounting. It is basically accurately recording a business’s day-to-day financial transactions regularly in the books of accounts. Let’s try to understand Bookkeeping practically. Let’s say an organization makes sales and expenses on a daily basis. A bookkeeper is accountable for recording and maintaining each transaction (comprising both sales and expenses) systematically in chronological order.

Another key point is that the data recorded in the books of accounts is used further for accounting. Hence, bookkeeping is an essential aspect of accounting. It comprises a number of financial tasks, including:

1. Recording daily financial transactions, including payments and expenses
2. Generating and tracking invoices
3. Posting credits and debits 
4. Posting general ledgers
5. Maintaining and balancing subsidiaries and historical accounts
6. Processing payroll for employees working in an organization
7. Monitoring bill payments
8. Keeping a close eye on all sorts of transactions happening in and out of the organization
9. Conducting monthly bank reconciliations

Who is a Bookkeeper?

A bookkeeper is accountable for recording daily financial transactions in a business. The primary responsibility involves identifying and recording the transactions accordingly in the book of accounts.

What is Accounting?

As discussed above, bookkeeping is a small aspect of accounting, but accounting is way more subjective and comprehensive than bookkeeping. Bookkeeping involves mainly recording transactions, but accounting involves a systematic approach of recording, classifying, analyzing, interpreting, summarizing, and finally communicating the entire financial transaction. Being an accountant requires relevant skills and knowledge, as accounting is a high-level process.

Accounting not only influences financial decision-making but also accesses the status of the business and makes relevant financial forecasts accordingly. It involves a number of tasks, including

1. Preparing adjusting entries
2. Analyzing the cost of operations
3. Evaluating company financial statements
4. Analyzing the costs of operations
5. Completing income tax returns
6. Finance management and relevant changes
7. Filing tax returns & tax planning and advisory
8. Preparing financial statements, including balance sheets, cash flow statements, and income statement

Who is an Accountant?

Accountants are skilled professionals who evaluate the financial data compiled by bookkeepers. Based on their evaluation and understanding of the data, they interpret and present it to help businesses understand where they currently stand. Skilled at identifying larger trends in businesses, accountants help in financial decision-making.

Fundamental Differences between Accounting and Bookkeeping

Though Accounting and Bookkeeping are interrelated, they are poles apart if seen from a close-up. Unsurprisingly, it can be truly said that when Bookkeeping ends, accounting begins.

The table mentioned below discusses the crucial points that reflect both accounting and bookkeeping are different.

Bookkeeping	Accounting
Bookkeeping is largely transactional.	Accounting is more subjective than bookkeeping.
When it comes to scope, Bookkeeping is limited to recording daily transactions only.	Accounting is very vast and involves high-level financial operations.
Bookkeeping doesn’t involve creating financial statements. It indeed helps in the making of financial statements by providing valuable data.	Creating financial statements is one of the key responsibilities in accounting.
It doesn’t influence financial decision-making.	It does influence financial decision making after analyzing the financial statements.
It involves preparing and managing the book of accounts	It involves auditing the accounts
It comprises generating and sending invoices to the customers or recording received payments	It comprises accessing the overall cost of operations
Many businesses don’t hire bookkeepers. Their task is often accomplished by either an accountant or the business owner himself.	They are irreplaceable as they are experts with different skill sets.

Key Difference between an Accountant and a Bookkeeper

Though both bookkeepers and accountants must be comfortable with numbers all day long, they still have significant differences when it comes to their responsibilities. Check out the table below, which reflects those differences precisely.

Bookkeeper	Accountant
Bookkeepers should be meticulous in spotting issues with daily transactions and ensuring the data is recorded and tracked correctly.	Accountants are more involved in analyzing, interpreting, summarizing, and communicating recorded financial data to the concerned authorities.
Any process involving monetary exchange needs the involvement of bookkeepers so that they can spot inconsistencies.	They monitor all sorts of financial data so that they can make impactful decisions, making businesses scalable and profitable.
A bookkeeper doesn’t require any prior credentials or licenses. Anyone with basic knowledge and understanding of key financial topics can perform the task.	An accountant must be skilled enough to analyze the financial report and advise the organization’s leadership as needed. In some cases, accountants also need to be registered certified public accountants (CPAs).
They are paid less compared to accountants.	They receive way more than bookkeepers, depending on the size of the business.
Their task doesn’t involve much complexity as they simply record data and maintain accounts.	Their task involves much contemplation, analysis, and planning.

An Accountant or a Bookkeeper: Who Do You Need?

This question can be easily answered depending on a few metrics, including

1. The Industry
2. The Skill Set and Experience
3. Size of the Business

The very first one is industry. Multiple industries, such as government agencies, colleges, and hospitals, have complex financial systems and high-volume daily transactions. If your industry is one of them, you certainly need a skilled accountant with first-hand experience. In addition to this, depending on how dynamic and large-scale you business is, you can make up your mind whether you need an accountant or a bookkeeper or both for your business. 

It generally happens that an accountant replaces a bookkeeper, or the organization usually hires an accountant to fulfill a bookkeeper’s responsibilities, including his own. However, a knowledgeable and skilled bookkeeper with years of experience and practical knowledge of accounting applications can be considered more qualified than a recent accounting graduate.

Winding Up!!

We have come to an end of our discussion about the difference between accounting and bookkeeping. Hopefully, you must have gained enough valuable insights to acknowledge that despite both are inter-related, they have fair share of dissimilarities. Paying special attention to only bigger pictures and futuristic goals, and not recording daily transactions may not be fruitful significantly because you’ll have very little info to hand over to your accountant. Therefore, the accountant won’t be in a position to take informed decisions. Similarly, only recording day-to-day transactions and not monitoring future possibilities is equally unfortunate from a business point of view.

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