It can be difficult to see the difference between bookkeeping and accounting. The confusion is understandable as there are overlaps between the roles of bookkeeper and accountant. Bookkeeping and accounting both deal with financial data and use that data to generate and classify financial information. However, bookkeeping focusses on recording financial data while accounting deals with the analysis and interpretation of that data.
Small business owners often take the role of both bookkeeper and amateur accountant within their own business confusing the matter even more. The evolution of bookkeeping technology is also blurring the line by providing simple classification and analysis tools to those with minimal accounting knowledge.
The most obvious difference between bookkeeping and accounting
The most obvious difference between bookkeeping and accounting is their objective. The primary objective of bookkeeping is to keep systematic records of all financial records for a business. The aim of an accountant is to use a business’ financial data to develop an understanding of the business’ financial situation and help the owner make informed business decisions.
On a day to day level, the main difference between bookkeeping and accounting is a bookkeeper is responsible for recording all financial transactions undertaken by a business whereas an accountant interprets and analyses financial data and provides insights into the financial situation. Bookkeepers are generally not involved in the analysis and application of the data they gather.
Is there really any difference between bookkeeping and accounting?
The difference between bookkeeping and accounting is increasingly blurry. Many small business owners do their own bookkeeping to save money, and modern bookkeeping software can help to generate basic financial reports that were traditionally part of the accounting process. In some small businesses the accountant is also responsible for recording and maintaining financial data filling the role of a bookkeeper (causing further confusion).
At its core accounting is the process of interpreting financial data. While anyone can review the financial data obtained in the bookkeeping process, if you don’t fully understand what it says, you won’t receive the full benefits. Another way of thinking about it is that bookkeeping is an element of accounting. It is the first step of the accounting process and provides all the raw data necessary for an accountant to do their job.
How are bookkeeping and accounting related?
There are many differences between bookkeeping and accounting, but ultimately they are both financial services designed to help your business run as smoothly as possible. Bookkeepers and accountants specialise in different elements of a business’ finances and often work together to provide accurate and useful financial information. The records maintained by a bookkeeper form the basis of the analysis provided by an accountant. In some companies, accountants will also help ensure that all data gathered by a bookkeeper is an accurate representation of the company’s finances.
Financial data is important in its own right, but the most significant thing about the information gathered by a bookkeeper is what is done with it. At a basic level, it can be used simply to track how much money comes into a business vs. how much money goes out. However, the accounting process can take this information and interpret it to deliver insights and advice about the business’ financial health.
Do I need a bookkeeper or an accountant?
The difference between bookkeeping and accounting becomes significant when deciding whether or not you need help managing the financial aspects of your business. When small businesses reach a certain size, it can become impractical and costly for business owners to continue handling their own bookkeeping. Outsourcing to an external bookkeeper means that you have someone dedicated to recording your business’ financial data. This means important information financial information is less likely to be swamped by other concerns. If you are looking to gain insight into your business’ financial health or if you are looking for opportunities to expand, you need someone who can provide insight and advice. Accountants are qualified to handle the entire accounting process and provide a deeper understanding of your business’ financial state.
If you are looking to gain a deeper understanding of your business’ finances or you want to outsource your bookkeeping and free up your time, Arabon can help. We provide a range of bookkeeping and accounting services for businesses of all sizes. Let us help you take some of the stress out of handling your finances by finding the right support options for your business. Call us today on 1300 ARABON or visit our website for more information.