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 accounts can benefit your small business.

• What is bookkeeping?
• What is accounting?
• The main differences between a bookkeeper and an accountant
• How do bookkeepers and accountants work together?
• The accounting cycle explained
• Accountant vs bookkeeper: Which should you hire?
• Consider your options

What is bookkeeping? 

Bookkeeping is the process of recording all financial transactions a business makes from its opening to its 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 organized, 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, minimizing 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 season 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 season 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 a certified public accountant (CPA). To use that title, CPAs must pass the CPA 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.
• Managing the bookkeeping process: 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 financial statements, including the income statement, balance sheet, and cash flow statement.
• Performing financial audits: Accountants perform audits to analyze 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 season, your accountant may produce the tax filings and send them to the IRS or work with a CPA 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. 

Clerical vs. analytical

Bookkeepers handle the day-to-day recording of financial transactions, including tracking income, expenses, and payments. Their primary focus is on maintaining accurate, up-to-date ledgers and organizing financial data. This provides the foundation accountants rely on for their work.

Accountants analyze this financial data and perform higher-level tasks such as generating financial reports, offering insights on business performance, and ensuring compliance with regulations. They also provide strategic advice for financial planning and forecasting. While bookkeepers manage the records, accountants interpret the information to support decision-making and long-term financial strategy.

Credentials 

The largest difference between accounting and bookkeeping roles is the required credentials, or academic qualifications, for each. 

Bookkeeper credentials:

• Bookkeepers aren’t required to have any specific certification or formal education
• Bookkeepers must understand basic and key financial topics and have an eye for accuracy
• Bookkeepers must also have basic skills such as organization, communication, and attention to detail 

Accountant credentials:

• Accountants must have a bachelor’s degree or higher in the field of accounting or finance.
• Accountants can attain professional certifications to grow their careers and earn a higher income, such as a CPA title. 
• Accountants must also have an eye for accuracy and attention to detail as they oversee a bookkeeper's work

If you already use specific tools to manage your books, you’ll want to discuss those tools with any bookkeepers or accountants you consider working with to ensure they’re familiar with them. 

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.  

Bookkeeper objectives:

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

Accountant objectives:

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

Skill sets 

Bookkeeping and accounting also require different skill sets for each role, and while these skills can certainly overlap, there are some notable differences:

• Mathematics: Both bookkeeping and accounting include daily basic mathematics operations like addition and subtraction; however, accounting involves more complex operations such as percentages, ratios, and exponents.
• Detail: Both roles require great attention to detail. A bookkeeper’s job is to ensure that a business documents its records correctly for the accountant to analyze. Accountants not only need to ensure that the information the bookkeeper provides is correct, but they also need to be able to identify any inconsistencies or issues within the reporting.
• Problem-solving: Bookkeeping and accounting both require expert problem-solving skills. While bookkeepers need to be able to find discrepancies within reporting, the accountant must be able to resolve any issues and come up with solutions.

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. 

Roles During Tax Time

During tax time, the roles of bookkeepers and accountants differ significantly in scope and responsibility. 

Bookkeepers focus on accurately recording and categorizing all financial transactions from the year—such as sales, expenses, payroll, and other daily entries. Their primary job is to organize and maintain financial records, ensuring that the data is complete and up-to-date.

Accountants take this data and perform more complex tasks, such as preparing and filing tax returns, analyzing financial records for accuracy, and maintaining compliance with tax laws. They also provide strategic advice on tax planning, identifying possible deductions or credits, and help minimize tax liabilities. 

While bookkeepers provide the foundational financial data, accountants focus on interpreting that data and managing the actual tax filings and regulatory reporting.

Document Preparation Differences

Bookkeepers are responsible for creating and maintaining essential financial documents that record day-to-day transactions. These include sales receipts, purchase orders, invoices, expense reports, and bank reconciliations. They record these transactions in ledgers, journals, or accounting software. 

Accountants work with more comprehensive financial documents derived from the data bookkeepers provide. They prepare financial statements like balance sheets, income statements, and cash flow statements. Accountants also generate reports for budgeting, forecasting, and complying with financial regulations. These documents offer insights into the company’s overall financial health and aid in strategic planning.

Online bookkeeping services and accounting software like QuickBooks can help save you time and money by partnering with live bookkeepers and accountants who can help manage your financial records with guaranteed accuracy. 

How do bookkeepers and accountants work together?

Bookkeepers and accountants work together by handling complementary tasks that support a business's financial health. 

Bookkeepers are responsible for the daily recording of transactions, maintaining accurate ledgers, and ensuring financial data is well-organized. Accountants rely on this organized data to perform more advanced financial analysis, create reports, and provide strategic advice. 

During tax season or other financial reporting periods, bookkeepers supply the detailed records that accountants need to prepare tax filings, financial statements, and forecasts. Collaboration streamlines financial operations and helps businesses stay compliant with tax and regulatory requirements.

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 of 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: Payrolls 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 should you hire?

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

Consider hiring a bookkeeper if you need someone to:

Manage day-to-day transactions

If your business has grown to the point where you can no longer handle daily financial tasks, such as recording sales, managing invoices, or tracking expenses, it’s time to hire a bookkeeper. They will help maintain accurate financial records and free up your time for other business priorities and activities.

Keep financial records organized

Bookkeepers record and organize all transactions, making it easier to track the financial health of your business. If you struggle with keeping things in order, a bookkeeper can step in and manage this for you.

Assist with payroll and billing

Bookkeepers can also handle payroll processing and bill payments, so you can better monitor your cash flow.

Consider hiring an accountant when you need:

Financial analysis and reporting

As your business grows and financial complexity increases, an accountant becomes necessary to provide detailed financial reports, analyze your company’s financial performance, and offer strategic advice for growth.

Tax planning and compliance support 

If your business has complex tax needs or you're unsure about tax regulations, hiring an accountant can ensure compliance and help with tax planning, potentially saving you money in the long run.

Budgeting and forecasting

Accountants help with budgeting and financial forecasting, providing insights into your business's future performance and helping you make informed financial decisions.

Is hiring both an accountant and bookkeeper necessary?

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. 

For example, if your business is expanding rapidly, you may require the help of a bookkeeper to manage daily transactions alongside the strategic financial guidance of an accountant to keep your financial system strong and promote continued success.

No matter which direction you choose, one thing is certain: Hiring a bookkeeper or accounting professional is the best way small business owners can manage financial growth.

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. 

Still stumped on how to handle bookkeeping vs. accounting tasks for your small business? Small business accounting software like QuickBooks helps you track your business finances all in one place, making it easily accessible to you and your accounting team.

If you need an extra hand, you can also work with a team of QuickBooks-certified bookkeepers 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.