Bookkeeping is the daily financial tracking of all of your daily financial transactions. The bookkeeper of a business might choose to use online bookkeeping software to track everything. Double-entry accounting enters every transaction twice as both a debit and a credit. Your business’s books are balanced when all of the debits equal (or cancel out) all of the credits. And since it takes equity, assets and liabilities — on top of expenses and income — into account, it typically gives you a more accurate financial snapshot of your business.

Unlike bookkeeping, which is all about crunching numbers, accounting is more subjective. CPAs are trained on the latest tax laws and regulations, which can be too complex for a business owner to implement on their own. Many business owners decide to hire bookkeeping or accounting help when their business finances have become more complicated to manage alone. Still stumped on how to handle bookkeeping vs. accounting tasks for your small business?

Understanding the distinction between accounting and bookkeeping is essential to managing your business finances. Outsourcing accounting can also free up your time to focus on other aspects of running your business! Plus, you’ll receive valuable insights and financial advice from experienced professionals on achieving business growth and stability in the long run. For example, if a bookkeeper does not pay invoices correctly, handle payroll accurately, or verify expenses, then all other accounting tasks may be harder to execute. Think of bookkeeping as the first step in the holistic accounting process, preparing your business accounts for more complex tasks. A bookkeeper must catch tiny or hidden mistakes because even small ones can affect your business.

Advantages of working with a bookkeeper

Bookkeeping is a transactional and administrative role that handles the day-to-day tasks of recording financial transactions, including purchases, receipts, sales and payments. Accounting is more subjective, providing business owners with financial insights based on information gleaned from their bookkeeping data. Bookkeeping focuses on managing financial books by documenting transactions, managing accounts, and recording financial data.

• Bookkeepers don’t necessarily need higher education in order to work in their field while accountants can be more specialized in their training.
• Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content.
• Accounting software eliminates a good deal of manual data entry, making it entirely possible to do your own bookkeeping.
• AIPB certification requires bookkeepers to have at least two years of full-time work experience and pass a national exam.
• Know you’re set up right with help from a QuickBooks expert who can help you connect your banks and credit cards, and learn best practices to use QuickBooks with confidence.

Certified Public Accountants can look at how your business is structured and advise you on how to best set it up. For instance, if you’re currently a sole proprietor who may be better off restructuring as an S-Corp, your CPA can explain why it may be worth the extra paperwork and potential expenses. If you’re willing to take on the responsibility, you can do your own bookkeeping! Accountants tend to have specialized knowledge that helps them look at the ‘big picture’ of your business finances and make recommendations. While only 30% of small businesses surveyed reported working with an accountant, those who do cite accountants as their most important advisors.

Products and Services

It is concerned with summarizing of the recorded financial transactions. Single-entry accounting records all of your transactions once, either as an expense or as income. This method is straightforward and suitable for smaller businesses that don’t have significant inventory or equipment involved in their finances. It doesn’t track the value of your business’s assets and liabilities as well as double-entry accounting does, though.

Small business accounting software like QuickBooks helps you track your business finances all in one place, making it easily accessible to you and your accounting team. In this guide, we’ll explain the functional differences between accounting and bookkeeping, as well as the differences between the roles of bookkeepers and accountants. When it comes to deciding between one or the other, think of them as a pair working in tandem. Most small businesses can get by in the early stages using a bookkeeper, and that may be sufficient for managing day-to-day activity. In many cases, a skilled bookkeeper can perform many of the same tasks an accountant would.

Is accounting better than bookkeeping?

In either case, familiarizing yourself with bookkeeping terms and accounting basics can certainly go a long way toward making the process easier. Yet, with the right tools, it’s possible to keep your business’s finances employer identification number in order – quickly and easily. These external reports must be prepared in accordance with generally accepted accounting principles. Save taxes with Clear by investing in tax saving mutual funds (ELSS) online.

However, it’s important to note that your bookkeeper won’t be the only person working on your business finances. So you’ll want to understand which tasks your bookkeeper is and isn’t responsible for handling. Small businesses often work with tax advisors to help prepare their tax returns, file them and make sure they’re taking advantage of small-business tax deductions. Though you may not work regularly with a tax specialist year-round, you’ll want to connect with one sooner rather than later so you’re not rushed come tax time. Accrual basis accounting records those invoices and bills even if the funds haven’t been exchanged. Generally, accrual basis is the recommended accounting method and more aligned with generally accepted accounting principles.

Process of Bookkeeping

The education required to be competitive in the field is greater, but the payoff down the road can be considerably higher. As an accountant, you may have to crunch numbers, but those are not the only skills needed. It is important to possess sharp logic skills and big-picture problem-solving abilities, as well.

CFAs must also pass a challenging three-part exam that had a pass rate of only 39 percent in September 2021. The point here is that hiring a CFA means bringing highly advanced accounting knowledge to your business. However, if your accountant does your bookkeeping, you may be paying more than you should for this service as you would generally pay more per hour for an accountant than a bookkeeper.

Bookkeeper Duties

A bookkeeper can manage most of these tasks, but an accountant takes them further by using those financial statements to offer valuable financial advice. As a small business owner, employing an experienced bookkeeper who can set up your books and maintain them accurately will free up invaluable time. Likewise, leaning on a skilled accountant can help you understand your business beyond the day-to-day and set you up to make smart choices about the future. Investing in both a bookkeeper and an accountant on your team ultimately sets up your business for the most success while keeping you free to focus on what you’re truly passionate about.