Bookkeeping vs. Accounting: What’s The Difference?

Bookkeeping and accounting are two terms that you’ve probably come across a lot whether you’re looking to hire someone for a role, fill one yourself, or simply improve your financial know-how. 

These terms are sometimes used interchangeably (I used to be guilty of this myself), but they’re not actually the same! 

While there is some overlap between the roles, there’s also a whole world of difference between the two – with some key things you need to be aware of when comparing bookkeeping vs. accounting!

In this article, I’ll give you all the basics to keep you informed, including:

• What bookkeeping and accounting are
• Key differences between the two
• The roles that a bookkeeper and accountant play
• Some pointers to help you decide which is a better fit.

Key Takeaways

• Bookkeepers are transnational recordkeepers who track and organize incoming and outgoing payments, along with other related responsibilities
• Accountants take this organized data and analyze it to create future business strategies and financial reports
• While accountants do get paid more than bookkeepers, the job does require a higher level of education and certain certifications
• Make sure to weigh your options and consider your personal needs and goals before choosing the type of financial assistance that is needed at your business.

Bookkeeping

Essentially, “bookkeeping” is keeping track of finances. A bookkeeper remains on top of every transaction and ensures that all the data is organized and balanced. 

I like to think of a bookkeeper as a record person who monitors everything that’s going on in a business and keeps a close eye on even the tiniest of details. 

As you’d probably guess, bookkeepers are essential for the day-to-day functioning of a business!

Accounting

While bookkeepers are in the thick of the daily grind, accountants train their eyes on the bigger picture. 

Accounting takes the information gathered by a bookkeeper and analyzes it – allowing them to prepare financial reports and note trends, gains, losses, and other potential insights. 

These are extremely valuable for improving profit, minimizing losses, and fine tuning overall business performance!

Key Differences

To help clarify the distinction, I’ve prepared the following chart to illustrate the key differences between a bookkeeper and an accountant:

Description	Bookkeeping	Accounting
Transactions	Recording transactions	Analyzing transactions to gain useful insights about the business
Responsibility over	Making sure that all data	Drawing on financial data
Financial data	Remain organized	To prepare financial statements
Role in businesses	Maintaining organized and updated ledgers	Assist in tax and regulation compliance, as well as the preparation of business strategies

Bookkeeping

Record transactions

Bookkeepers are at the heart of the financial health of any business — precisely because they exert so much time and effort making sure every transaction is reflected properly! 

Bookkeepers are responsible for verifying the accuracy of the records and preventing any errors and instances of fraud from slipping through the cracks.

Financial data organization

Bookkeepers initially note a business’s transactions through journal entries, recording each as they happen throughout the day. 

Once that’s done, bookkeepers will then post these records to the ledger (the more organized version of business transactions). Doing this makes it much easier to track down financial information and gather insights from them!

Maintain ledgers

As I’ve mentioned, ledgers are an organized system of tracking business transactions, typically classified according to the five main accounts of a business: assets, liabilities, equity, income, and expenses. 

It’s also the bookkeeper’s job to maintain the ledgers and update them, ideally as soon as the transaction has taken place!

Accounting

Analyze financial information

The sharpest tool in an accountant’s toolbox is their mind! 

Specifically, it’s their ability to analyze financial data and use logic to gather insights that will inform crucial business decisions. 

Accountants will often observe trends, make inferences, and advise a business on what actions to take to maintain and improve financial health.

Prepare financial statements

I don’t think any other document can compete against financial statements and how important they are to businesses. 

These are essentially snapshots of a business that report how effectively it’s performing and how healthy its finances are. With the information in these statements, enlightened decision-making becomes the norm!

Compliance and strategy

Another important responsibility of an accountant is to make sure that the company is compliant with regulations and is punctual with its tax obligations. 

Seasoned accountants are also very helpful when formulating business strategies as they can point out potential weaknesses and loopholes and ensure plans remain realistic.

Bookkeeper vs. Accountant: Roles

Here’s a look at the differences in day-to-day responsibilities:

Bookkeeping	Accounting
Record daily payments and costs	Work out the cost of operations
Manage payslips	Analyze and review records prepared by the bookkeeper
Prepare financial records for the accountant	Manage audits
Manage and organize invoices	File tax returns and generally manage tax
Collate end-of-year or end-of-period financial reports	Control financial health and make forecasts

In general, bookkeepers need to be well-organized and proficient at simple math, as well as have a sharp eye for the details. 

They don’t usually require formal education; it’s not unheard of for a high school graduate to immediately work in a bookkeeping role. 

Despite the relaxed educational qualifications, don’t underestimate bookkeepers! A good bookkeeper is still an invaluable asset as they’re the first point of contact for the financial side of any business. 

On the other hand, accountants generally hold at least a bachelor’s degree in accounting or another area of finance. 

They need to be able to provide in-depth analysis of records, make accurate predictions, and be highly knowledgeable about business and taxation. 

Accountants also typically hold post-graduate qualifications, such as becoming a Certified Public Accountant (CPA).

Choosing What’s Best for You

If you’re looking to hire a bookkeeper or an accountant for your business, there are several factors to consider before making your decision:

Assess your needs

Ask yourself first: what exact need do you require to be fulfilled? Do you just need the basics, or are you looking for more in-depth analysis and trend prediction? 

In small businesses, the owner sometimes takes on one of these roles themselves. 

They can either manage the day-to-day bookkeeping and consult with an accountant for more complex issues, or hire a bookkeeper to manage the finer details and bring them summarized reports to look over and interpret. 

Consider the complexity

If you have multiple transactions that paint too complex a financial picture, it may be worth hiring a qualified accountant. 

While it may cost a bit more than a bookkeeper, the price is justified when you realize you’ll be sidestepping a potentially expensive financial mistake! 

As an added advantage, a good accountant can also help to grow your revenue stream over time.

Budget considerations

Budget always comes first! A bookkeeper is still a really good investment, especially if you can’t afford both a bookkeeper and an accountant at the moment. 

Additionally, if you currently don’t have enough money coming in for you to analyze, there’s not much point in hiring an accountant. 

Expertise required

Bringing an accountant (especially a CPA) on board can also add to brand credibility. 

It also means you’ll enjoy greater peace of mind and accountability with tax matters, auditing, and overall financial health. 

The larger and more intricate your business is, the more important it is to have someone with plenty of expertise on your team.

Business size

It’s also important to have more roles filled as your business grows. 

While I think having a proficient bookkeeper is enough for smaller endeavors, having both a bookkeeper and an accountant is ideal if you’re looking to expand. 

Your accountant can also help you calculate manageable upscaling and onboarding costs so you can sustainably achieve your business goals.

Long-term goals

In line with the above, it’s important to keep your future plans in mind! 

While hiring new staff is an immediate expense, it can save you so much money and provide you with a more effective revenue stream in the long term. 

If you can afford it, hiring both a bookkeeper and an accountant (or even more than one of each) is a great idea.

The Bottom Line

Now that you have a better understanding of the difference between these two positions, it’s much easier to figure out exactly what your business needs.

At the end of the day, bookkeepers and accountants are both valuable, skilled assets to any business. 

While accountants require a higher level of education and are able to do more complicated financial analyses, the raw data (and the accuracy of that data) provided by a bookkeeper is equally vital. 

The decision to onboard a bookkeeper, an accountant, or even both ultimately depends on a number of factors. 

Remember that there’s no one-size-fits-all solution, and what works for you might not be as effective for other people.

FAQs