What’s the difference between accounting and bookkeeping?
You want to know how to make an accountant spit the dummy? Call them a bookkeeper. While you might not understand the difference, they will. And for whatever reason, accountants don’t like being called bookkeepers (this is a bookkeeper by the way).
Much like those people who don’t understand the difference between Aussie rules, league and association football and call them all footy, a number of small business owners use the terms accounting and bookkeeping interchangeably. In reality, they are two entirely different things.
Knowing the difference between accounting and bookkeeping will ensure you don’t make a fool of yourself should you ever be talking to a financial professional. But it can also help your small business find the help it needs. Here are five key differences between accounting and bookkeeping.
The main reason accountants hate being called bookkeepers is because they spent years in university earning a specialist degree before joining the workforce. Some go one step further by acquiring a special qualification such as Chartered Accountant (CA) or Certified Practising Accountant (CPA) certification. However, these are not required for them to practise their profession. Both of these make accounting a specialised industry.
On the other hand, bookkeeping is not a profession that requires higher education. Anyone can become a bookkeeper. While some may have a desirable trait, such as a degree in a related field or being a certified Tax Agent, these are not a requirement.
Despite this, a bookkeeper can be an invaluable resource for a small business owner. You can check out our previous blog to find out more about what a bookkeeper does.
Bookkeepers aren’t necessarily paid to think, they are paid to record financial information. An accountant on the other hand will be skilled in big picture thinking. They can take a look at the information collected by the bookkeeper and provide insights and analysis regarding the financial health of your business. They can also make suggestions on how a company can grow, cut costs or use money more efficiently.
Think of your business as a school. You are the principal., the accountant is the teacher and the bookkeeper is the teacher’s assistant. The teacher creates the lesson plans and tests and sets the direction of what students will learn based on the goals the principle has given them. The assistant teacher is there to help with recording exam results and tracking student progress, but she doesn’t decide what happens in the classroom.
Bookkeeping tracks finances and reports this information. It is only through the use of accounting that this data can be turned into strategies to meet the goals you have set for your business.
Accounting, while useful, is not a necessity for a small business. It can help business owners make informed decisions in terms of financial planning and strategic decisions, but it isn’t always needed for survival. Bookkeeping is absolutely required no matter how big or small your company is.
If you currently don’t employ a bookkeeper, chances are you are performing their tasks yourself. Things such as payroll, expense tracking and the completing and filing of BAS forms are all bookkeeping duties that must be done regularly. Meanwhile, if you aren’t actively handling accounting tasks at your company, it’s likely these aren’t being done at all.
Bookkeepers are far more involved in the day-to-day operations of a business. Since they are the ones responsible for tracking expenses and payments, petty cash and payroll among other financial functions, they will be your go-to person should you want to know more about cash flow.
Accounting doesn’t really involve any of your company’s day-to-day functions. Instead, an accountant is concerned with the big issues facing your company such as taxes or investment opportunities. An accountant can also provide oversight of bookkeeping work, checking to see if it is being done correctly.
For most business owners, the only thing that matters is price. And while this is an important consideration, being a cheapskate when it comes to your company’s finances isn’t always a brilliant idea.
Without question, hiring a bookkeeper will be cheaper than bringing aboard an accountant. But there are other things to consider.
For starters, don’t feel compelled to hire one or both on a full time basis. Doing this is just plain foolish. Most small businesses only need bookkeeping services for a few hours each week and there are plenty of qualified bookkeepers out there willing to work on an hourly basis or for a monthly minimum fee.
While more expensive, many accounting firms also work on an hourly basis or per consultation. Hiring one during tax time or when considering a business expansion could offer value since they will know how to save you money.
One important thing to note: an accountant will need all financial information in order to be helpful while a bookkeeper isn’t reliant on anything from an accountant to do their job. If you plan on hiring an accountant in any capacity, either you or a bookkeeper must have the required data in order. Otherwise, it will be a waste of their time and your money.
You need both to succeed
According to The Voice of Australian Business survey conducted by Bentleys, two of the four most time-consuming tasks for small and medium-sized enterprises are accounting and bookkeeping. And for business owners who don’t get any help with either, it’s easy to see how these two separate roles can blend together.
Both do deal with finances, but that’s where the common ground ends. What’s more, at some point you’ll need both to be successful. Maybe you can handle some bookkeeping duties, or maybe you have a bookkeeper that can handle some accounting tasks. The truth is that neither is a great solution.
And yet business owners continue to hold on to both roles despite a lack of skills or capacity to take on one, let alone both. Much like the stubborn neighbour with a broken car who refuses to take it to a mechanic, many business owners refuse to seek help when it comes to bookkeeping or accounting. Oftentimes, this is inevitably to the detriment of their company.
Now that you know the difference between accounting and bookkeeping, there are plenty of options available when it comes to finding help with both. If you’re looking for a little assistance, or simply need to know more about what the differences are, get in touch with us today.