Entrepreneurial Accounting Resources

Tuesday, June 22, 2010

Bookkeeping & Accounting – What’s the Difference?

Bookkeeping is commonly defined as the recording of financial transactions. Financial transactions include sales, purchases, income, and payments by an individual or organization. Bookkeeping should not be confused with accounting.

Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof." In other words, the accountant focuses on reviewing the work of a bookkeeper, making appropriate adjustments, and reporting the recorded financial transactions. The accountant is also responsible for filing reports and forms with government agencies.

Differences between a bookkeeper and an accountant

  1. Bookkeepers accurately and efficiently enter daily transactions in the appropriate ledgers and sub-ledgers, process accounts payable and accounts receivable, process payroll, reconcile accounts, and perform periodic closes.
  2. Accountants are not only skilled bookkeepers but also investigators who review books for completeness, locate errors or omissions, and make appropriate adjustments. A professional accountant is skilled in communicating with the client and providing customized reporting that not only addresses the needs of the client but also the needs of the tax accountant and other team members.
  3. An Accounting Manager (or Controller) is often found in the accounting department of a small to medium sized company. They review accounting and operations processes and build or recommend improvement. An Accounting Manager will create customized reports and is able to analyze financial statements, interpret them (or review and interpret them with the owner or business manager), and make recommendations for future improvements for budgeting and planning purposes.

A Tiered Approach

When you consider hiring a professional bookkeeper or accountant, it makes sense to consider a tiered approach. With a tiered approach to your accounting, you pay for the level of service you receive based on hourly rates. You only pay for services when you need them, performed by the appropriate hourly rate, making the service a cost effective, all-inclusive alternative to a full-service accounting department.