If you have a small business, you know how important it is to ask questions…even ones that may seem “dumb”. You’ve heard the old cliché, “There is no such thing as a dumb question.” Well, it’s true. At the risk of feeling like you should know the answer, it’s always wise to ask if you aren’t sure. What’s the difference between accounting and bookkeeping? Believe it or not, it’s one of the widely asked questions in the small business financial realm. Read on to find out the answer. You may be surprised.
Similarities Between Small Business Bookkeepers & Small Business Accountants
There are many similarities between small business accounting and small business bookkeeping. Both are needed to gather financial records and comprehend them. Critical financial decisions depend on the results of both bookkeeping and accounting. While both are extremely important to small businesses, contrary to what many believe, they aren’t the same.
Differences Between Bookkeepers and Accountants
While bookkeepers and accountants are similar in many ways, their job descriptions are quite different. Small business bookkeepers record financial statements, while accountants prepare financial reports from those statements.
Accountants have a license. To become a Certified Enrolled Agent, you must have coursework credit hours and pass a written exam. Bookkeepers, on the other hand, may have a degree, but it is not required.
In short, small business accountants sort the information that bookkeepers gather and record. Here’s a closer look at the job descriptions for each:
Small Business Bookkeeping
Bookkeepers record and maintain financial information, such as daily transactions. They also tend to the day-to-day business activities. Without bookkeeping, it would be a mess trying to balance books and conducting other financial business that requires figures to be in place.
Small Business Accounting
Accounting is summarizing, analyzing, and interpreting books as well as generating reports. While bookkeepers make raw data supplies available, accountants put the figures into topics that make sense – like cash flow and so forth.
Managing Financial Transactions: Bookkeepers’ Responsibilities
A bookkeeping service keeps up with corralling financial data on a daily basis and performs such tasks as:
- Recording transactions. Recording important transactions such as invoices and customer payments is one of the main duties of a bookkeeper.
- Tending to forecasting. The records kept in the books help determine the growth rate of the business and analyze the data in areas such as new accounts and increased traffic.
- Looking after payroll. Not only do bookkeepers tend to the payroll, they also collect information on past, current, and future payroll.
- Managing cash flow. The records they keep on bank statements help keep up with where cash comes from and where it goes.
Small Business Accountants and Financial Data Duties
Small business accounting is more about defining the data that bookkeepers gather and record. Some of the most important services accountants provide include:
- Tax accounting. Certified Enrolled Agents are experts at preparing tax returns. They are well-trained in compliance with tax regulations and can also help optimize deductions.
- Public accounting. From generating reports from internal financial data and statements to dealing with balance sheets, conducting reviews, and doing audits. Accountants are professionally trained to tend to a multitude of duties.
- Financial accounting. Financial accounting is one of the main duties of an accountant. It requires generating reports from internal financial statements and understanding IFRS and GAAP standards.
- Forensic accounting. Forensic accounting is when an accountant audits or conducts other investigations into the financial conduct of a business. This is a specialty niche that is typically not a service that is not often needed except in the insurance industry.
Bookkeeping Vs. Accounting: Which Path is Right for Your Business?
Whether you need an accountant or a bookkeeper, depends on the job at hand. If you are needing help with uncomplicated taxes where gathering figures is the biggest part of the job, a bookkeeper will most likely be able to fit the bill. If your taxes are complex, or you want to analyze your tax data in order to maximize deductions and make a plan for future taxes, an Enrolled Agent is who you’ll want to turn to.
Knowing and understanding the difference between the two professions of bookkeeping and accounting will help you make the most optimal choice when it comes to hiring a small business bookkeeper or a small business accountant and ideally, you may want to have access to both. If you want any other information related to bookkeeping or accounting tasks for your business, you can contact us today or at our phone number. Our professionals are ready to assist you.