What Is the Difference Between Bookkeeping and Accounting?

Bookkeeping and accounting are both essential to your company’s financial management, but they are not the same thing. While the terms are sometimes used interchangeably, bookkeepers and accountants actually play distinct roles.

Understanding the difference is crucial to make smart financial decisions now and in the future.

Let’s break down what sets them apart, how they work together and how you can determine what level of support you need to handle your books.

What Is Bookkeeping?

Bookkeeping is the process of recording and maintaining your company’s daily payments, expenses and other transactions. Most tasks are transactional and objective. Bookkeepers work with raw data without making any interpretations about what it means.

Accurate bookkeeping allows you to view your company’s raw financial data, file your taxes correctly, compile necessary statements and receive payments from customers.

Some of the tasks a bookkeeper does for your business include:

• Maintaining an organized general ledger
• Recording payments, sales and expenses
• Keeping track of all supporting business documents, such as receipts
• Sending invoices
• Handling payroll
• Providing year-end financial documents and tax forms to an accountant

What Qualifications Does a Bookkeeper Need?

Bookkeepers typically aren’t required to have particular degrees, licenses or credentials. Some bookkeepers may hold a CPB or CP certification, which demonstrates their knowledge and skill set, though not every position requires this.

Whether it’s handled within your company or outsourced, what matters most is that your bookkeeper is highly detail-oriented, familiar with financial concepts and possesses strong math skills.

Outsourcing can be especially convenient for growing companies that only require part-time financial support.

What Is Accounting?

Accounting is a more analytical and subjective field than bookkeeping. It uses the raw financial data compiled by a bookkeeper to produce financial models. By interpreting and analyzing these numbers, accountants can give you insights and make recommendations for future decisions. 

A good accountant translates raw data into actionable insights and helps your management make well-informed financial decisions, create realistic budgets and produce accurate forecasts of your financial future.

Some of the tasks an accountant can do for your business include:

• Preparing financial statements and tax returns
• Analyzing cash flow and operating costs
• Preparing budgets and recommending changes
• Reviewing and analyzing financial statements
• Conducting audits
• Forecasting the impact of financial decisions
• Making financial strategy recommendations to management
• Ensuring compliance with all regulations and laws

What Qualifications Does an Accountant Need?

If you’re wondering how to become an accountant, you should have, at minimum, a bachelor’s degree in accounting or finance. 

Many accountants also go on to earn other professional certifications, such as becoming a certified public accountant (CPA) or certified management accountant (CMA). These licenses require hours of additional coursework and passing an exam.

An accountant should be highly detail-oriented, organized and good with math. They should be an excellent problem-solver and able to effectively communicate their findings with clients.

While some business owners feel comfortable handling basic accounting tasks themselves, professional accountants are typically brought in for more complex work that demands compliance, such as filing taxes or preparing for financial reviews.

Accountants aren’t just for tax season. Startups and small to medium-sized businesses can benefit from working with an accounting firm or fractional service year-round. 

Does Your Company Need a Full-Time Bookkeeper or Accountant?

As your business grows and changes, so do your financial responsibilities. Eventually, every growing company faces an important decision:

Should you continue handling your finances yourself, hire someone in-house or outsource the work to a professional? 

Here are some factors to keep in mind when making this decision.

Your Own Financial Knowledge

As a business owner, you juggle a lot. But are you a financial expert?

While basic financial knowledge is crucial for any business owner to have, even the most seasoned CEOs have their limits. Some of the more complex accounting tasks are best left to the professionals. 

Remember: even a single mistake can be extremely costly. An experienced accountant who is up-to-date on all the rules and regulations is an extremely valuable resource to your business operations.

Company Size 

If you’re a startup conducting very few transactions, it might not make sense to hire a full-time in-house accountant or bookkeeper. Handling your financial tasks with the help of software like QuickBooks may be all you need.

As your company attracts more customers, hires more staff and becomes more complex, tasks become far more time-consuming. Outsourcing the work or bringing on an in-house bookkeeper can save you a lot of time and energy, allowing you to get on with growing your business.

Current Workload

How many transactions does your company complete on a daily basis? How many invoices are you sending?

Seeing an increase in sales is exciting for your growing company. However, the more daily transactions you have to manage, the tougher it can be to keep everything straight. There’s a much higher risk of errors or missed invoices, which can lead to cash flow errors and compliance risks.

If you’re currently struggling to handle your workload with your current resources, it might be time to outsource the work or hire a new team member.

Budget

Once you’ve decided your business needs help, hiring a full-time bookkeeper or accountant might seem like the next logical step.

Before posting on a job board, consider where there’s room in your budget for a full-time addition to the team. 

It’s not just about salary: you’ll also need to think about the costs of recruitment, training, benefits and office equipment. Employment expenses can wind up costing you 20 to 40% of your new employee’s base salary.

For many companies, outsourcing bookkeeping and accounting work is the most cost-effective solution. You avoid overhead, skip the hiring hassle, and only pay for the services you actually need. Plus, you can scale up or down at any time, so it will always fit into your budget. 

Final Thoughts

As a business owner, it’s important to understand how bookkeepers and accountants can support your growth. 

Whether you’re a startup that’s just beginning operations or a small business preparing to scale, getting experienced financial support can help you avoid mistakes and make smarter decisions for the future of your company.

If you’re looking to outsource bookkeeping or accounting tasks, Finvisor is here to speak with you. 

We welcome you to get in touch for a free introductory call to learn more about what it’s like to work with our experienced team of financial advisors.