Bookkeeping vs. Accounting: What’s the Difference?

If you think that question hits a nerve with accounting professionals, well, you’re right. But we’re not being overly sensitive. The truth is, there are significant differences between bookkeeping and accounting that all too many businesspeople simply don’t understand, and can cost their companies money in both the short and long term. Let’s consider a few of those differences in detail:

Bookkeeping and accounting are interchangeable.
False. This is a common misconception. While some aspects of bookkeeping and accounting are similar, the tasks and responsibilities for each are very different. A bookkeeper records and organizes a company’s finances on a day-to-day basis. An accountant records, summarizes, analyzes, and reports transactions to provide accurate and timely insights and analyses for decision-making.

“Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor in the University of Wisconsin-Whitewater Department of Accounting. “Accounting is designed to turn data into information.”

Bookkeepers focus on the day-to-day financial transactions of a business, whereas accountants focus more on big picture issues.
True. A bookkeeper becomes intimately familiar with the daily transactions of a business. S/he sets up the chart of accounts, records daily financial transactions such as invoices, purchases, sales, receipts, and payments. A bookkeeper can tell you if your business is making a profit or if your expenses and bills are greater than your income. Today bookkeepers rely on accounting software such as QuickBooks, although there are many other branded applications available.

An accountant relies on the work the bookkeeper does and uses that as a basis for evaluating the overall health of the business. An accountant must be logical and good at problem solving. S/he prepares (but doesn’t sign) tax returns and financial statements (including the balance sheet, income statement, and cash flow statement), and conducts audits to makes sure the business is following ethical and legal standards. An accountant may provide advice on long-term strategies when it comes to business. However, in general, an accountant will not offer tax advice.

Tax strategy and tax advice are typically offered by a certified public accountant (CPA). CPAs must complete graduate level education and pass four difficult, standardized exams verifying a level of expertise in core subject areas. Those areas are taxation and regulation, auditing and attestation, financial accounting and reporting, and business environment and concepts.

Both bookkeepers and accountants can file a company’s tax returns with the IRS.
Generally False. Only qualified professionals are licensed to file a business’s tax return with the IRS. Neither a bookkeeper nor an accountant is allowed to sign tax returns. That responsibility is left to CPAs, registered agents, or other tax specialists.

Both bookkeepers and accountants can conduct audits.
False. Only accountants conduct audits. External audits or audits of public companies are handled by CPAs.

Bookkeepers want to make sure your business is profitable; accountants want to help you pay less tax.
True. That’s a succinct summary, but that’s only one part of the differences between the two professions. Accountants look at the overall business situation based on the data gathered by the bookkeeper. They analyze the data and provide business insights. They can provide information about forecasts, business trends, and growth opportunities. Further, accountants can help business owners understand the meaning behind the data and prioritize actions.

For information on professional accounting services tailored to meet your business’s needs, contact our accounting team at Weiss & Company LLP.