Bookkeeping and accounting in general are considered to be the same set of services. In business terms, bookkeeping is regarded as a subset of accounting services. A person designated the position of an accountant should be familiar with bookkeeping services. However, a bookkeeper need not know all the tasks performed by an accountant.
A business based on its size must choose between two types of services to follow an efficient approach towards the finance-related issues. The following discussion differentiates between the two sets of services to help you choose the best professionals for each of them:
Defining the Two Processes
Bookkeeping is defined as the set of services that maintains the accurate records of business transactions so that the upper level management is able to keep an eye on the inflow and outflow of money.
Accounting, which also known as financial accounting is the set of services employed to carry out a complex analysis of the overall financial situation of an organization that involves bookkeeping as a small part of it.
An Elaborate View of Duties
You can further learn about the differences between the two by understanding the tasks performed by a bookkeeper and a financial accountant. A bookkeeper’s duties are more focused on the day-to-day financial situations of an organization. This involves:
• Reconciliation of bank transactions of the company to avoid or recognize any type of fraud occurring in the company’s bank account.
• Managing employee payroll while keeping in mind the government regulations of the region.
• Keeping records of accounts payable, as well as accounts receivable.
• Keeping track of the inventory which is affected by the purchases made and income generated by a company.
• Most importantly, the preparation of the general ledger and financial statements. A bookkeeper must ensure that all the business accounts are accurate and up-to-date.
An accountant doesn’t perform his duties on a day to day basis; rather, he reviews the general ledger and financial statements prepared by the bookkeeper at the end of a month or a quarter and also, at the end of a fiscal year. The following broadly classified duties are part of an accountant’s job profile:
• An accountant carries out the analysis of the financial records and reports prepared by the bookkeeper to help the top management make new decisions for the growth and profit of the business.
• Tax preparation is an important function of an accountant. Calculation of taxable income and deductions are the important tasks for which a company relies on an accountant.
• Budgeting is another important activity for which a business house needs the services of an accountant.
• An accountant also works as an advisor to the company during events like mergers, acquisitions, and all other new business decisions.
It is good to consider an accountant as a supervisor to a bookkeeper. The latter must report to the former so that the overall process of business accounting is followed effectively.
As one can see, the duties performed by a bookkeeper are more tedious than those performed by an accountant. On the other hand, an accountant has a sophisticated set of services to perform that help the business to have a control on its profits and overall financial stability.
Which Services Are Required?
Now the question is how a business should choose among bookkeeping and accounting services. As mentioned above, it is the size of the business that should form the basis of the types of services required by it.
Small businesses don’t generate a large volume of invoices and bills, and thus, can work well with either of the two types of services. An accountant is indeed the more suitable alternative for a small business, as he can perform both types of tasks. Hiring a bookkeeper for a small business may not be of great help in procedures like tax preparation and important decision taking.
As far as large business houses are concerned, there is a need for both types of services. It becomes important in a large company to reduce the burden of an accountant so that he can focus more on the important tasks like business advising and financial statement analysis. So, a bookkeeper must be hired to take care of daily procedures like account management and employee payroll management.
In many states, clear distinction between the duties of a bookkeeper and an accountant are made to help businesses of different sizes choose the right set of services. These states strongly recommend hiring the services of a certified public accountant for the purpose of accounting.
The businesses are also provided guidelines to learn about the duties of these professionals. Choosing a certified professional for business accounting is a good step in the direction of establishing and maintaining financial stability of the business.
Tags: financial accounting, financial department