Bookkeeping vs. Accounting: What's the Difference?

It’s more than just balancing the books and filing taxes

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As your small business grows, the financial side of running a company inevitably becomes increasingly complicated. One of the best things you can do to help manage this important facet is to consider hiring an experienced bookkeeper and an accountant. These complementary allies will help keep track of your business expenditures, income, and profits as well as set you up for success once tax time rolls around.

There are significant differences when it comes to bookkeeping and accounting, and it’s important to know whom to turn to for what tasks. Bookkeepers can help organize your day-to-day finances, such as your daily sales, expenses, and even payroll. An accountant, on the other hand, will take your bookkeeper's nuanced records and translate them into tax preparation, and also offer advice about the health of your business and future planning.

In this article, you will learn the differences between bookkeeping and accounting, as well as instances in which each member of your financial team is necessary.

What’s the Difference Between Bookkeeping and Accounting?

It’s helpful to understand the different roles of a bookkeeper and an accountant so you can utilize them appropriately as your business grows. Although they both have a hand in your company’s finances, their skill sets and purposes vary.

Generally, while both occupations have common goals and tasks, they support businesses in different ways and at different phases of the financial cycle.

Responsibilities of a bookkeeper and an accountant include:

Bookkeeping Accounting
Answers day-to-day financial questions Macro-financial advice
Maintains and balances a ledger Adjusts entries in the ledger
Produces financial statements like the balance sheet Analyzes business costs
Records daily transactions Completes in-depth budgeting and forecasting
Enters debits and credits Prepares taxes
Maintains income and expenditures Conducts strategic planning

Maintaining the Books

A bookkeeper is the person on your team who handles your business’s books the most. They are responsible for maintaining the ledger, whether that’s analog or via an automated accounting software, and ensures the books stay balanced.

Bookkeepers post debits and credits to record each transaction and make sure all income and expenses are accounted for. These elements are crucial for a business owner to understand the day-to-day picture of their business’s financial health. Additionally, maintaining the books on a daily or weekly basis prevents having to play catch up when tax time rolls around.

When it comes to the ledger specifically, your accountant might determine the accounting method (cash or accrual), then periodically adjust entries to update an account per the chosen method. For the most part, though, your accountant uses the books to assess your business and strategize for the future.

Your accountant will also use information from the ledger to prepare your tax documents, so it is crucial the two roles work together for accurate IRS reporting. Think of your bookkeeper as the one building the foundation of your businesses finances, and your accountant as the architect who designs a house around it, inspecting the foundation.

Business Advisor

Both your bookkeeper and accountant can be trusted, key advisors for your business—just in slightly different capacities. An experienced bookkeeper can offer advice on ways to create effective financial systems so nothing falls through the cracks on a daily basis. Your bookkeeper will maintain your working ledger in a way that is accurate and easy to understand, and can alert you to red flags as they arise. Additionally, since they have a micro view into your books, they should be able to offer ideas on budgeting and spending in the short term.

Your accountant, on the other hand, will be an invaluable resource when it comes to understanding the larger financial picture of your business. Either quarterly or yearly, your accountant will assess your company’s financial statements to help you view a larger picture of your business’s cash flow, as well as any profits or losses. Accountants can advise you when it is time to update certain strategies that may be costing your business money, or when you need to fully understand how certain decisions fit into your overall financial goals.

Future Strategy

Having accurate records and an up-to-date awareness of how your business flows on a short-term basis is a key component for deciding where to go next, and that’s where a bookkeeper comes in. While a bookkeeper will remain an important partner for strengthening that foundation of a company, when it comes to creating pathways for the future, you should look to an accountant.

A skilled accountant is the person who helps you scale and plan for the next steps in your business. They analyze your books, help you understand what’s working and what needs to change, and they offer the expertise needed to help you move into the next phase of your business.

With the help of an accountant, you may be able to identify and navigate tasks including strategic tax planning, acquiring assets, calculating growth, and analyzing investment opportunities.

Bookkeeper vs. Accountant: Which Is Right for You?

If you’re looking to get a handle on the day-to-day finances of your business, look for an experienced bookkeeper. One of the most important parts of running a business of any kind is accurate recordkeeping, and a bookkeeper can help make that process simpler and more manageable.

While a bookkeeper can help with the precise details of the business, an accountant is better suited to do bigger-picture analysis and strategic planning. If you want advice on how to work a company car into your small business or whether to acquire real estate, for example, your accountant can help incorporate those ideas into your company’s financials to help you make the right choice.

Businesses of all sizes need to keep careful track of income, expenses, and transactions, which includes everything from daily sales and invoices to receipts and payroll.

As you’re planning your budget for the following year, your accountant will be the one who can provide analysis and suggestions to ensure your company is in the best fiscal shape to succeed. And, of course, all companies need to file taxes, which can become extremely complicated as your business grows. A trusted accountant can help guide you through that process and help handle any audits that may arise.

The Bottom Line

While it is important for every type of business owner to understand the financial side of their business, bookkeepers and accountants can make that process far less labor intensive for the business owner. When it comes to deciding between one or the other, think of them as a pair working in tandem.

As a small business owner, employing an experienced bookkeeper who can set up your books and maintain them accurately will free up invaluable time. Likewise, leaning on a skilled accountant can help you understand your business beyond the day-to-day and set you up to make smart choices about the future. Investing in both a bookkeeper and an accountant on your team ultimately sets up your business for the most success while keeping you free to focus on what you’re truly passionate about.

Frequently Asked Questions (FAQs)

Why would someone use an automated accounting system instead of a traditional bookkeeper?

Many small business owners attempt to save money by performing the recordkeeping duties of a bookkeeper themselves with the help of automated software, such as Intuit or Quickbooks. This can help save money and keep a small business lean, although it requires a major time commitment and meticulous attention to detail from the business owner.

How do you learn to do bookkeeping?

Although there are technically no certifications required to be a bookkeeper, there are multiple certifying organizations, such as the American Institute of Professional Bookkeepers, that require certain coursework and testing in order to designate someone a certified bookkeeper. There is also ample opportunity for on-the-job training, apprenticeships, and post-secondary coursework that can help someone become a skilled bookkeeper.

What is double-entry bookkeeping?

Double-entry accounting is the method most commonly used by complex businesses, even very small ones. It is a way of tracking how money flows in and out of your business by entering debits and credits in at least two accounts in a company’s chart of accounts. The debits and credits offset each other with the goal being a net sum of zero to keep the books balanced.

What is GAAP in accounting?

The Generally Accepted Accounting Principles are standards of accounting developed by the Financial Accounting Foundation’s standard-setting board. They are often used to help set standards for financial reporting, and to allow for ease of assessment when it comes to someone, such as an investor or lender, offering resources to a given company.

What is goodwill in accounting?

Goodwill is a very complicated concept that typically applies in acquisitions. It accounts for a purchase price that is higher than the fair net value plus the company’s assets put together. Essentially, it accounts for brand value, market share, customer base, and all other intangible assets that may make a company attractive to a potential purchaser.

What is forensic accounting?

Forensic accounting combines auditing, accounting, and investigative skills to evaluate a businesses finances and determine any instances of fraud. It is a complicated method that highly skilled accountants use.