What is the Difference between a Bookkeeper and Accountant?
In the Article (Quick Access)
The roles of a bookkeeper and an accountant are sometimes confused.
As the name suggests, a bookkeeper records the transactions of a business, while an accountant analyzes and interprets the data to provide advice on financial decisions.
However, the two roles are not completely distinct.
Small Business Owners usually do not know the difference, and even when they do, business owners cannot seem to figure out which one to hire.
The simplest answer to that conundrum is that bookkeepers and accountants are needed by businesses at different stages of their life and financial cycles.
Moreover, a simple comparison between the two reveals that the services and functions they provide to a business are different as well.
Bookkeeping, in short, is simply just what its name suggests.
It involves keeping a record of financial transactions, making it more administrative than insightful.
On the other hand, an accountant needs to take care of bookkeeping while also providing insights into your business’s financial standing.
An accountant becomes a far more integral part of your team, with their input crucial to your business’ success.
There’s a lot more to be said about the roles bookkeepers and accountants play for businesses beyond just this cursory look. That is exactly what this article is going to look at.
Beyond defining the roles of the two, this article will also help you choose between the two depending on your business requirements at the time.
Without further ado, let’s look at the roles of the two different record keepers in detail:
What Does Bookkeeping Accomplish?
The profession of bookkeeping has existed ever since the advent of commerce – all the way back in 2,600 BC.
Trading and the exchange of valuables and currency meant that the transactions and the amounts involved in them had to be recorded for future reference.
Trying to figure out where all the money went is a sentiment as old as money after all.
A bookkeeper is tasked with recording the daily transactions of a business in an orderly and consistent manner.
The financial information they record does more than just keep a track of a business’s finances. Beyond that, bookkeeping is also essential for other aspects of a business as well.
A Bookkeeper’s tasks include:
- Recording daily transactions
- Producing invoices
- Posting credits and debits
- Completing the payroll at the end of every month or week
- Maintaining ledgers, historical records, and subsidiaries
- Producing financial statements, such as cash flows statements, income statements, and balance sheets
Furthermore, a bookkeeper is expected to fulfill these tasks in a way that helps the business owner.
A bookkeeper has to maintain the transaction record in an easy-to-read and presentable manner, which helps highlight critical information to the owner.
A bookkeeper’s primary task is to maintain the general ledger for a business.
The general ledger is a document that the business uses to note down all the sales and expense receipts.
While a business owner may do this when the business starts out and is small, the activity becomes taxing when the business grows. That is where a dedicated bookkeeper comes in.
The act of noting down the receipts on the ledger is known as posting. Posting becomes more frequent once sales or expenses become frequent.
A business can create the general ledger as an Excel sheet, a physical ledger, or with computerized software. The last option is the most popular nowadays, as well as the safest.
The complexity of bookkeeping is dependent on how big a business is and how many transactions they make.
Beyond just recording the sales and expense receipts, a bookkeeper may also have to keep a record of supporting items and documents. These documents are required by tax authorities.
Now, let’s see how an accountant differs from all of this –
What Does Accounting Accomplish?
Accounting refers to higher-level tasks that make use of the financial information collected by bookkeepers or small businesses owners to develop financial models to help the business.
Unlike the transactional bookkeeping process, accounting is far more subjective and more reliant on the understanding and acumen of the individual(s) tasked with it.
Along with that, accounts play a more integral role in a business. Their tasks include:
- Verifying and analyzing the records and information handed to them by bookkeepers and business owners
- Preparing adjusting entries, which are expenses that have occurred but have not been recorded by the bookkeeper as yet
- Reviewing the business’ financial statements
- Compiling and filing income tax returns
- Analyzing the cost of operations of the business
- Helping the business owner understand the possible outcome and costs of financial decisions
According to the book Accounting for Dummies by John A. Tracy: “Accountants look at the big picture. They step back and say, ‘We handle a lot of rebates, we handle a lot of coupons. How should we record these transactions? Do I record just the net amount of the sale, or do I record the gross sale amount, too?’ Once the accountant decides how to handle these transactions, the bookkeeper carries them out.”
An accountant’s job, more than noting down the numbers, is to analyze financial reports and offer advice based on that to business owners.
The accountants help business owners become more aware of their cash flows and profitability beyond the numbers.
In short, accountants help present the bigger picture that you will not see by just looking at the numbers in the general ledger.
Business owners typically hire accountants when they want insight into or help with financial forecasting, analysis of their finances, tax filing, and strategic tax planning.
Not all accountants may be able to help with all four, and some businesses, if they are large enough, usually hire an accounting team to help with their finances.
It’s safe to say accounting is a far more complex extension of bookkeeping, but what separates the two in credentials and work:
Credentials of Bookkeepers and Accountants
A bookkeeper doesn’t need any specific credentials for their job.
Anyone can be a bookkeeper as long as they are able to deal with numbers. To be good at their job, bookkeepers need to be good at handling financial information and focus on accuracy.
Inaccuracies can create problems for the accountants and business owners who supervise a bookkeeper. Moreover, bookkeepers cannot call themselves accountants because they lack the education and certification for it.
On the other hand, an accountant needs to be educated in the field.
They need to have, at least, a bachelor’s degree in accounting or finance. Moreover, accountants may also need to get additional certification for their job, or if they specialize in a certain field.
Accountants with the right amount of education and experience can attain the title of Certified Public Accountant (CPA), along with others if they wish to.
The additional certifications they possess have a major bearing on their employment opportunities and their cost as well – which is what we will look at next.
What Do Accountants Charge?
The average salary of an accountant in Australia is AU$59,855 (Source: Payscale).
However, accountants can earn a lot more than or even less depending on the state and the certifications they possess.
Furthermore, the earnings of an accountant are also dependent on the size of the company they work for. A larger business will obviously pay more, but it will also involve a lot more work.
The Benefits of an Accountant
If you’re wondering why you should pay more for an accountant, here are the extra benefits you can get:
Accountants are responsible for giving business owners a comprehensive analysis of their financial standing, while also providing them with advice and financial strategies. A bookkeeper simply maintains the general ledger.
Accountants can legally help with any evidence and information required in court cases pertaining to a company’s finances due to their certifications.
Accountants are educated and trained to provide financial expertise, which makes them a valuable asset for any business.
Do You Need a Bookkeeper or an Accountant?
As mentioned at the start of this article, a business needs bookkeepers and accountants at different stages.
If you’re a small business just looking to keep an eye on the finances, there’s no need to hire an accountant.
However, you will need one once your business starts to grow or even if you’re looking to scale and need some advice on how to do so.
Furthermore, you will have to choose whether to keep your bookkeeper once you hire an accountant.
An accountant can take over from a bookkeeper, but having both helps keep accountants focused and fresh to provide you with the expertise you need.
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