Bookkeeping vs accounting: what’s the difference?

Do you know the difference between accounting and bookkeeping? As a business owner, you’ll have heard of both but might be fuzzy on what the two tasks (or services, if you hire a professional) involve.

This guide will help you understand the whole ‘bookkeeping vs accounting’ dilemma by covering:

• What a bookkeeper and an accountant do
• Typical tasks of both professions
• When to hire which professional
• How Countingup can help with your bookkeeping and accounting

Bookkeeping refers to handling the day-to-day tasks of recording financial transactions. Accounting involves analysing that data to provide financial insights. 

A bookkeeper’s job is to maintain a complete record of a business’ financial affairs; of the money moving in and out of that company. Bookkeepers record daily transactions clearly and consistently, enabling accountants to do their jobs. We’ll discuss what an accountant does later in this article.

Bookkeeping is a crucial part of the accounting process, involving tasks like:

• Recording financial transactions
• Documenting debits and credits
• Creating invoices
• Tracking accounts payable and accounts receivable
• Managing payroll
• Maintaining the general ledger

Managing the general ledger is one of a bookkeeper’s main responsibilities. A general ledger is a document that records sale and expense receipts, keeping track of the amounts earned and spent. Ledgers vary in complexity depending on the business’ size and how you choose to prepare it. 

Company ledgers can be anything from a sheet of paper to a specialised bookkeeping and accounting software like Countingup. Using accounting software to track your financial data is often much more efficient. Your information is stored securely in the cloud, meaning you can access it from anywhere. Additionally, the Countingup app allows you to receive updates about transactions, invoices paid and cash flow on the go.

While bookkeepers don’t need a special license or certifications, bookkeeping accreditation and licensing are available. A bookkeeper with professional credentials shows a commitment to the trade. 

Certified bookkeepers will also possess the skills and knowledge they need to manage your books effectively. Additionally, it shows a willingness to learn new methods and techniques to provide a better service.

An accountant takes the bookkeeping information then analyses and reports on that financial data. While bookkeepers take care of the first stages in the process, accountants are involved from the start. Unlike bookkeeping, which is all about crunching numbers, accounting is more subjective.

Typical accounting tasks include:

• Interpreting data to determine a business’ financial health
• Preparing financial statements (balance sheet, income statement, cash flow statement)
• Analysing operational costs (what you spend running your business)
• Completing income tax returns
• Helping small business owners understand the impact of financial decisions

Accounting produces reports that show important financial information. This data gives you a better understanding of your company’s profitability (how successful you are) and cash flow (money entering and leaving your business).

As a small business owner or sole trader, you may look to accountants for help with the process of creating your company. You may also need an accountant to help you with financial forecasts, tax compliance, planning and filing, and strategic planning.

Depending on their experience, an accountant will have varying qualifications, licenses and certifications. 

You may have come across the term ‘CPA accountant’. CPA stands for Certified Public Accountant and refers to accounting professionals who have passed the Uniform CPA exam in their country. To keep their certification, CPAs must also complete regular training to keep up with new trends in the field.

CPAs should understand tax law and accounting software well while also demonstrating excellent communication and social skills. If you want to hire a CPA, make sure they also have a working understanding of your industry and what small businesses generally need.

Since accountants and bookkeepers both work in the financial field, they share some similarities, including:

• Working with financial data
• Aiming to improve the business’ financial situation
• Needing accounting knowledge
• Having their roles overlap in a small business
• Being tax compliant

Managing your finances can be tricky when running a small business if you’re not familiar with accounting and bookkeeping. To make sure your books are done correctly, you may want to hire a professional accountant or bookkeeper to take the task off your hands. But how do you know when to hire someone and which professional to hire?

Suppose you don’t have a lot of financial data to manage. In that case, you might consider outsourcing accounting or bookkeeping services on a freelance basis. One-person businesses especially don’t tend to have enough work to keep a full-time accountant or bookkeeper busy every day. 

However, if you find yourself calling your accountant so often that you wish they could be there with you all the time, it may be time to hire full-time help. If you have a freelance bookkeeper working part-time and still falling behind, you may also need to bump them up to full time.

Remember that bookkeepers record your financial data while accountants make sense of it. If you need help beyond crunching the numbers, hiring an accountant is probably the wiser move. An accountant will be able to help you with the bookkeeping and offer you advice on how to manage your finances more effectively to be more successful.

Now that you’ve understood the differences between accounting and bookkeeping, it’s time to decide on your next steps. Should you manage your own finances, delegate the work to a financial professional or opt for accounting software?

When you sign up for a Countingup business current account, you get free built-in accounting software that allows you and your accountant to keep track of your books with ease. 

We’ve automated the time-consuming aspects of bookkeeping and tax planning so you can focus on running your business. You also receive live profit and loss reports, cash flow insights, tax estimates, and instant invoices. 

Keep your finances running like clockwork. Download the Countingup app today.