Bookkeeping vs accounting: What’s the difference?

Industry newcomers tend to use the terms “bookkeeper” and “accountant” interchangeably, but there are a few important distinctions between the two. 

Bookkeeping focuses on managing financial books by documenting transactions, managing accounts, and recording financial data. This includes responsibilities like delivering balance sheets and income statements, confirming account accuracy by preparing trial balances, reviewing documents, and posting entries into accounting software.  

Accounting focuses on using that data to assess the financial health of a business and make data-driven business decisions. This includes responsibilities like overseeing a bookkeeper's work to ensure accuracy, making adjustments to trial balances, generating financial statements, and producing financial reports that are needed to file business tax returns. 

Below, we’ll take a closer look at bookkeeping vs. accounting, their key differences, and how working with bookkeepers and accountants can benefit your small business.

What is bookkeeping? 

Bookkeeping is the process of recording all financial transactions a business makes from its opening to closing. This practice helps establish the company’s financial outcomes and allows owners to track where their money is going. 

Bookkeepers record transactions based on documentation such as: 

• Purchase orders 
• Receipts
• Bills
• Invoices
• Any other reports that indicate someone made a transaction

Bookkeeping has two main methods: single-entry and double-entry.

Single-entry bookkeeping tracks the basics of a company’s spending and earnings, while double-entry bookkeeping tracks additional transactions such as assets, liabilities, and overall company financial health.

Regardless of the type of bookkeeping a company chooses, recording the day-to-day business financial transactions is an integral part of accounting.

What does a bookkeeper do? 

A bookkeeper keeps track of day-to-day business finances, like recording transactions and managing general ledgers. Good bookkeepers are organised, skilled with numbers, and natural problem-solvers.

Common bookkeeper responsibilities include: 

• Recording daily transactions: Bookkeepers review source documents and post journal entries into accounting software. 
• Reconciliations: Bookkeepers reconcile bank accounts and review the general ledger to ensure that financial information posts to the correct accounts. 
• Delivering reports: Bookkeepers deliver balance sheets and income statements. 
• Producing invoices: Bookkeepers may be responsible for preparing and sending invoices to clients and customers. They will manage all invoices to stay on top of late payments and ensure the business is being paid on time. 
• Managing payroll: Bookkeepers can help process payroll by managing employee pay and staying on top of tax payments and documents for small business employees. 
• Monitoring cash flow: Bookkeepers keep an eye on day-to-day transactions to make sure a business has enough funds to perform day-to-day operations. 
• Closing books: Bookkeepers confirm accuracy by preparing a trial balance to ensure they’re ready for tax time.

Advantages of working with a bookkeeper

Bookkeepers can benefit your business by freeing up more time in your schedule, minimising financial errors, and generating accurate financial reports. Working with a bookkeeper can also help ensure your books stay clean and up to date so you’re always ready when tax time rolls around. 

Some key benefits of hiring a bookkeeper include: 

• Not missing unpaid invoices and bills 
• Staying on top of cash flow issues 
• Making tax time easier 
• Making getting a small business loan easier 
• Giving you back more time to dedicate to your business

What is accounting? 

While accounting is similar to bookkeeping in that it involves documenting business financial transactions, the former process is more in-depth. It involves the summary, analysis, and interpretation of financial data. 

Accounting also involves reporting these findings to tax collectors and regulators. It’s a process that tells the financial story of your business, including if your business is profitable or if you’re suffering a loss.

Bookkeeping is a foundational aspect of small business accounting. Since accountants use the information gathered by bookkeepers to prepare larger financial statements and reports, the accounting process wouldn’t be possible without the help of bookkeepers. 

What does an accountant do? 

Accountants use bookkeeping records to assess big-picture finances and make smart business decisions. They also provide insights about the company's overall financial health to business owners and other stakeholders.

In general, an accountant’s role requires higher expertise and education. This individual usually holds an accounting degree and is registered as either a chartered accountant or a certified practising accountant (CPA). To use that title, CAs and CPAs must pass an exam which is a highly valued credential in the accounting industry.

Common accountant responsibilities include: 

• Overseeing a bookkeeper’s work: Accountants help ensure the accuracy of a bookkeeper's work, catch any discrepancies as they arise, and review accounting transactions within the books.
• Drawing insights: Accountants make corrections to any clerical errors on the bookkeeping side and use these records to forecast a business's health.
• Generating financial statements: Accountants make adjustments to the trial balance and generate the income statement, balance sheet, and cash flow statement.
• Performing financial audits: Accountants perform audits to analyse and verify all of a business’s financial records and statements. 
• Preparing tax returns: Accountants produce the financial reports required to generate tax returns. During tax time, your accountant may produce the tax filings and send them to the Australian Taxation Office (ATO) or work with an accounting firm that provides this service.
• Helping businesses understand their finances: Accountants can help businesses understand where their money is going and how to interpret the financial data provided. This can help businesses make smart financial decisions.

Advantages of working with an accountant 

Most importantly, your accountant is a valued advisor who can help you with important decision-making. If you’re considering purchasing new equipment or taking out a line of credit, for example, your accountant can help you determine the financial ramifications your decision can have.

Some key benefits of hiring an accountant include: 

• Preventing and reducing tax penalties and errors 
• Helping you understand the financial health of your business 
• Aiding in the growth of your business 
• Saving you time and money 
• Helping you understand tax laws and regulations in your state

The main differences between a bookkeeper and an accountant

Knowing the difference between bookkeeping and accounting can be tricky, especially with the interchangeability of the terms and how the duties can overlap. Here are a few key differences between bookkeeping vs. accounting.

Objectives 

As discussed above, the main objectives of accounting and bookkeeping are similar but still different in many ways. Both disciplines work hand in hand to determine the financial health of a business. Below are the main objectives of an accountant vs. a bookkeeper.  

A bookkeeper’s main duties include:

• Record transactions
• Maintain ledgers 
• Detect any fraud or discrepancies

An accountant’s main duties include:

• Review the financial records that the bookkeeper prepared
• Analyse financial records to determine if funds are being misused or misallocated.
• Analyse and report the financial information to all appropriate departments, institutions, and stakeholders within the organisation.

Pricing 

On average, a bookkeeper is usually less expensive to hire than an accountant. This is because an accountant’s responsibilities are usually more complex. However, the cost for both a bookkeeper and an accountant can differ based on things like: 

• The average market price: How much a bookkeeper or accountant charges based on the area you live
• What services you need: What services you’re requesting and how much time it will take to complete these tasks 
• The complexity of services: How challenging or complex your financial records are and if they’ll need more time to complete 

Both bookkeepers and accountants may charge a flat rate or, more commonly, by the hour. 

The accounting cycle explained

To fully understand how responsibilities differ between an accountant and a bookkeeper, it’s important to know about the system of tasks – or the accounting cycle – every business must follow to generate accurate financial statements. 

A bookkeeper can manage most of these tasks, but an accountant takes them further by using those financial statements to offer valuable financial advice.

The primary steps of the accounting cycle are as follows:

1. Create a chart of accounts 

A chart of accounts is a list of all the accounts within your company that are recorded in the general ledger. There are four main sections to the chart of accounts, which primarily consists of:

• Assets accounts: Anything you own that has value, like buildings, land, inventory, and vehicles. 
• Liability accounts: Payroll taxes, bank loans, credit card balances, personal loans, and deferred tax liabilities. 
• Income accounts: Rental income, contra income, dividend income, and sales income. 
• Expense accounts: Advertising expenses, interest expenses, depreciation expenses, salaries or wages, and cost of sales. 

A bookkeeper will complete these steps and use the chart of accounts to post every journal entry and financial transaction within the general ledger. 

2. Maintain journal entries and the general ledger

The bookkeeper posts accounting transactions in the general ledger using documents such as receipts, invoices, and other records of business activity. The general ledger is a sheet that houses all accounting data and financial records within a business.

Bookkeepers also post transactions using journal entries that track all account activities. 

A bookkeeper usually performs these steps, however, an accountant may step in to complete these tasks, or oversee them as they’re completed by the bookkeeper.

3. Generate the trial balance and adjust entries

Once the bookkeeper posts all transactions, the accountant generates a trial balance that lists all business accounts and balances. A trial balance may require adjustments and corrections using adjusting entries, which are necessary to comply with the accrual basis method of accounting required by the generally accepted accounting principles (GAAP). Accountants will then use the updated trial balance to produce financial statements. 

These steps require a more in-depth understanding of finances, so an accountant will typically perform them.

Note: Every step in the accounting cycle is performed at the end of each month and year. Without an accountant or bookkeeper, it’s up to the business owner to accomplish them on their own.

Accountant vs. bookkeeper? Which one should you hire? 

When deciding whether you should hire an accountant or a bookkeeper, the answer will depend on what kind of help your business needs. 

Bookkeepers play a vital role in managing financial records, while accountants offer valuable expertise and financial advice. Depending on your needs, you may want to consider working with both a bookkeeper and an accountant. 

Growing a business requires an increasing number of accounting transactions. You might start your business by handling accounting tasks yourself, then decide to hand off the day-to-day transaction input to a bookkeeper as you grow.

Eventually, your business will require the expertise of an accountant. As your business grows, it’s important to invest in professionals who can keep your accounting system on track, free up your time, and help you make better decisions for your business.

Consider your options

Taking the next step in maintaining your company’s records can seem daunting, but there are plenty of options available that will make it easier for you to stay focused on growing your business. 

Accounting software like QuickBooks can help save you time and money by partnering with bookkeepers and accountants within our Proadvisor program, who can help manage your financial records with guaranteed accuracy. 

If you need an extra hand, you can also work with a team of QuickBooks Proadvisors to help you manage and maintain your books virtually. They can help you keep past books up-to-date and take everyday bookkeeping tasks off your plate so you can focus on your business.