What Is the Difference Between Accounting and Bookkeeping?

So, your business needs some help keeping up with finances. You’re not alone. That’s why there are over 1.3 million bookkeepers, accountants, and tax preparers in the US. 

However, choosing the right one for your business is not always easy. For that, it’s important to understand the difference between accounting and bookkeeping. Here’s what you need to know!

What Is Accounting?

Accounting is the measurement, processing, and communication of financial information of institutions, including businesses. Organizations of all sizes and industries may hire an accountant to help manage their finances.

Qualified accountants can offer a wide range of services and tasks to these enterprises. Some common accounting tasks include:

• Analyzing the cost of operations
• Preparing and adjusting entries
• Advising business leaders through financial decisions
• Performing financial audits
• Assessing financial health
• Creating financial forecasts
• Providing tax advisory
• Preparing tax planning and filing returns

The list goes on. Accountants may offer a wide variety of financial services.

To become a licensed accountant, one must obtain a minimum of a bachelor’s degree. This can be in accounting or a related field. The university granting the degree must be accredited by a recognized accounting board.

Then, they will need to obtain their Certified Public Accountant (CPA) license to operate independently. This requires that they meet the education standards and pass the CPA exam.

Technically, you don’t need a degree to call yourself an accountant. However, a bachelor’s degree is the minimum requirement for licensure. Therefore, if you need accounting services (as opposed to just bookkeeping), make sure to hire a CPA.

Types of Accountants

We’ve made a lot of statements so far about accountants, specifically CPAs. There are also government accountants or investment accountants that work with specialized clients. However, there are many more types of accountants that can offer value to your business.

For example, there are auditors that specialize in auditing businesses and organizations. This can help prepare you for tax time, discover financial issues in your business, and cut expenses.

Moreover, if you need limited financial advice, there are project accountants. These accountants work to manage the budget for specific projects within an enterprise. There are also forensic accountants who analyze, interpret, and summarize complex financial records to determine their accuracy and importance.

Of course, there are plenty of other examples. However, a CPA is typically the best option for businesses of all sizes that need long-term financial management services. Still, different types of accountants can help with different needs.

What Is Bookkeeping?

Bookkeeping is exactly what the title suggests; “keeping the books”. In financial terms, this is known as maintaining the ledger. Essentially, bookkeepers keep your financial record updated. This includes accounts payable, accounts receivable, and other basics of accounting. 

Still, some bookkeepers may offer other services like payroll services or tax preparation. However, a traditional bookkeeper will primarily track and organize your business’s revenue and expenses.

Essentially, bookkeepers offer the basics of accounting services. They cannot offer financial advice or comprehensive tax services like a CPA.

Moreover, bookkeepers can still provide valuable services to a business. Some common examples of additional services include:

• Send customer invoices and record payments
• Payroll processing
• Preparation for an accountant
• Create financial statements (monthly, quarterly, etc.)
• Conduct bank reconciliations

Again, the list goes on. Now, let’s identify the key differences between the two.

The Difference Between Accounting and Bookkeeping

While they are cut from the same monetary cloth, the key difference is that bookkeeping handles the essentials while accountants can handle a larger scope. Traditional bookkeepers are limited to maintaining your business ledger, payroll, and financial records. It’s an important service, but automation may make it obsolete in the near future.

In many cases, the role of the bookkeeper is to assist an accountant who can offer more comprehensive services. Accountants can help with just about every financial aspect of your enterprise. They can offer financial advice, tax preparation, and so much more.

Full-Charge Bookkeepers

Essentially, all accountants are bookkeepers, but not all bookkeepers are accountants. However, that’s not to say that all bookkeepers are limited to the basics. Much like accountants, there are different types of bookkeepers.

For example, full-charge bookkeepers take on many of the roles of accountants. They often charge similar rates to traditional bookkeepers. However, they can also help with tax preparation, offer financial insights, and more.

This is a great middle-ground between a bookkeeper and an accountant. For the best results, we recommend outsourcing your bookkeeping services. This way, you’ll have a dedicated team of diverse bookkeeping and accounting professionals. But, you’ll share the expenses with other businesses.

Remember, when you hire a full-time bookkeeper, you have to pay their salary, benefits, and liabilities. These costs can add up.

Conversely, a bookkeeping agency will only charge a flat monthly fee. They will then give you access to accounting professionals with all types of backgrounds when you need them. Without a doubt, it’s the best bang for your buck!

Choose the Right Services For Your Needs

Now that you know the difference between accounting and bookkeeping, you can make an informed decision as to which is right for your needs. Even with the rise of advanced AI technology, bookkeepers still play an important role in the modern economy. You just have to find the right services!

Stay up to date with our latest tips for your business, and don’t hesitate to contact us with any questions or for help with your finances!