Bookkeeping vs. Accounting: Key Differences and Overlapping Responsibilities
- 1 Bookkeeping vs. Accounting: Key Differences and Overlapping Responsibilities
Running a business is more than selling a product or service. It requires accounting, taxes, and legal obligations from you. Both bookkeeping and accounting support your company in different financial stages, but the functions and tasks involved differ.
Knowing which services to expect from bookkeepers and accountants will ensure you hire the right one for your needs. Are you looking for a reliable accounting firm to help you make sound financial decisions? Click here to learn more about E.A. Buck Accounting & Tax Services. But first, here’s everything you need to know about bookkeeping and accounting.
Bookkeeping involves recording all the financial transactions within an organization (or business). It includes recording all sales made by your company and all purchases made on behalf of your company. Also include any other expenses incurred while running your business in this category, including utilities or rent payments (if applicable).
The main purpose of bookkeeping is to ensure that you have accurate records available when you need them: when tax time comes around yearly.
Accounting is the process of analyzing and communicating financial information about an organization. It involves collecting and recording business transactions, creating financial statements, and understanding a company’s past, present, and future status. The accounting department tracks the company’s assets, liabilities, income, and expenses.
Accounting is an essential function of a business. It helps to ensure that all transactions are recorded in an organized manner, which makes it easier for management to understand what’s going on with the company’s finances.
The Major Difference Between Accounting and Bookkeeping?
Accounting and bookkeeping are two different things.
What’s the Role of a Bookkeeper?
The role of a bookkeeper is to ensure that all the financial information you need is available, accurate, and complete. The role of a bookkeeper is to:
- Prepare invoices – The bookkeeper needs to ensure that all invoices get issued per company policy.
- Enter receipts into an accounting system – Bookkeepers use computer software programs to enter receipts into an accounting system like QuickBooks. However, they may also enter data manually if they don’t have access to computers or accounting software.
- Record financial transactions in an accurate and timely manner – It includes everything from paying bills and recording inventory purchases to calculating payroll and bank reconciliations.
- Prepare payroll – Payroll taxes are calculated based on the number of employees and their pay rate.
- Post debits and credits – This involves recording any money coming into or going out of the business and recording assets purchased or sold by the company. For example, if Company A buys supplies from Company B, Company A will debit its purchases account, and Company B will credit its sales account.
- Prepare financial statements – This includes monthly and annual reports on sales, expenses, and profit or loss.
What’s the Role of an Accountant?
Accountants keep a business’s books and ensure its financial records are in order. Accountants are also responsible for paying taxes on time and in full. The role of an accountant is to:
- Review financial statements – Accountants certify their accuracy before submitting them to shareholders, creditors, and others. They also ensure that all business transactions are recorded properly in the company’s books and that these books accurately reflect the company’s financial condition.
- Prepare income tax returns – Accountants prepare personal income tax returns for individuals and businesses.
- Analyze the cost of operation – Accountants analyze costs by breaking them down into labor costs (salaries), overhead expenses (rent, utilities), and materials used in production (raw materials). They may also analyze profit margins by comparing sales prices with costs incurred during production or sales. The results of this analysis help management evaluate whether its pricing policies are adequate and if they should change to improve profitability or efficiency operations.
- Offers financial advice – Accountants also offer financial advice based on their analysis of the client’s finances. It includes helping clients understand how their business is performing financially, identifying areas where there should be improvements, and determining whether or not they’re meeting their financial goals.
- Adjust entry books– Accountants review the day’s transactions and make adjustments to ensure that all figures balance properly. It can involve reversing errors or recording corrections made by customers or employees.
What are the Key Overlapping Responsibilities of Bookkeeping vs. Accounting?
Bookkeeping and accounting are two different functions, but they do have some overlap. Both inform you of your business’s status and project the future outcome of your business.
While accounting provides information about how much money you spent, how much your business made, and how much profit you made in a given period. Bookkeeping keeps track of all of the transactions that occur in your business.
Both bookkeeping and accounting are essential to every company. They help manage different aspects of the organization, recorded transactions, income earned, and potential expenses incurred, e,t,c. However, these two professions differ, depending on a company’s needs.
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