Having a clear idea of all your finances helps you make informed decisions while running a business. For managing your finances, there are two main commonly used terms namely, accounting and bookkeeping. Many people get confused and consider both of them as same, but they have quite different functions.
In this article, we shall discuss the key differences between accounting and bookkeeping in detail. So, keep reading to learn more!
Bookkeeping – Definition and Purpose
The main foundation of every financial process in a business is bookkeeping. In this, a systematic record of all the daily transactions is done for accurate financial records in one place. It involves –
- Recording all financial transactions (on a daily basis)
- Maintaining and balancing ledgers
- Generating invoices
- Maintaining debits and credit records
- Reconciling bank accounts
- Tracking inventory and payroll
The main purpose here is to keep a systematic record of all financial transactions and maintain proper records. Since this process involves regular transaction management, it is a continuous task. Thus, it needs to be done on a daily basis to manage all transactions easily.
Accounting – Definition and Purpose
Accounting is a broader domain that involves a series of processes like analysis, creating summaries and reports, etc. You can easily get a more detailed and insightful look into your business finances. Thus, all the collected data gets interpreted for adjusting the business strategy. It involves –
- Preparing different financial statements (income statements, balance sheets, cash flow statements)
- Managing taxes and ensuring regulatory compliance
- Conducting audits to analyze financial performance
- Creating budgets to forecast future performance
- Provide insights into the business’s financial health
The main purpose here is to analyse and use all the financial data to generate reports and make strategic business decisions for better business health. This includes periodic analysis, such as quarterly, monthly, or annual financial statement creation. Also, filing taxes as per the business income.
Key Differences to Note
Given below are all the main differences to know about both of them.
Education
Bookkeeping requires less formal education. You can apply for the job even after having a high school diploma or something equivalent to that. You can start a job in a small company to gain experience and then go back to college to get better certification in the domain.
When it comes to accounting, you must hold a bachelor’s degree in accounting or finance domains. You have to clear the relevant exam and complete your master’s degree to become a CPA (Certified Public Accountant).
Skills Required
Generally, both bookkeepers and accountants have to work with numbers and financial data. When it comes to bookkeeping, the experts have to pay proper attention to details. Moreover, you must have a basic understanding of the accounting principles. You have to avoid careless mistakes as these small mistakes can lead to costly and time-consuming issues in the future. As a bookkeeper, you have to multitask and manage different tasks properly. You must have the knowledge to work with a computer as you have to use accounting software to record transactions and keep track of the company’s financial position.
On the other hand, accountants must have advanced knowledge of accounting principles, tax laws, and financial regulations. You have to perform financial analysis, auditing, and financial reporting. You have to possess proper logic skills with problem-solving thinking to save your clients from complex financial issues down the road.
Job Outlook
Businesses require accurate financial record-keeping so they look for professional bookkeepers. However, with the rise of automation, you have to face high competition with fewer opportunities in the market.
On the other hand, accountants have broader opportunities for growth and advancement in the market. The demand for specialized accountants in specific aspects like forensic accounting, auditing, and tax is on the rise. In short, accounting is less susceptible to automation so offers a resilient career path in the future.
Conclusion
By now, you must have understood all the key differences between accounting and bookkeeping. While both of them are equally important for your business, it is important to pick the right service as per your requirements.
If you are looking for reliable accounting and bookkeeping services, Pacific Group of Companies offers the best accounting services to help you keep your business financial health under check. Contact the accounting experts at Pacific Group to create accurate financial records and assist in future strategy creation.
