A Guide to Understanding the Key Differences Between Accounting and Bookkeeping (by NetSuite)

Many business owners are advised to seek professional help for the financial aspects of their companies, but it can be unclear whether they should hire a bookkeeper or an accountant. Bookkeeping and accounting are both critical functions in small to medium-sized businesses, and it’s crucial to determine the appropriate level of services for your company to succeed. This article explains what bookkeeping and accounting functions involve and provides guidance on choosing the right role or combination of roles.

What is Bookkeeping?

Bookkeeping is the process of recording all financial transactions on a daily basis. Although it may involve simple and administrative tasks, it is crucial to a company’s finances and requires precision. Bookkeeping involves maintaining and balancing ledgers, managing accounts receivable and payable, and handling payroll. Since it is the initial accounting stage, bookkeeping tasks occasionally intersect with accounting ones.

What is Accounting?

Bookkeeping records important data, while accounting involves interpreting and presenting that data to provide useful information for managers. Accounting is focused on the bigger picture and includes financial statement generation and analysis, tax return preparation and filing, and providing financial forecasts and advice.

Bookkeeping vs. Accounting: Key Differences

Bookkeeping and accounting services are crucial for every business. To determine which services your company requires, evaluate your current financial situation and anticipate the type of growth your business is likely to experience. Then, determine which tasks you can handle independently. Although bookkeeping and accounting tasks may have some overlap, there are specific differences, which are highlighted in the table provided below.

Bookkeeping Tasks

Book involves keeping precise records of all financial activities, with a focus on transactions. Examples of these tasks include:

• Recording transactions: Bookkeepers are responsible for recording all financial transactions in the general ledger. The general ledger is a master document that displays the credits, debits, and balances for each financial account. To maintain precision, bookkeepers frequently use double-entry accounting which mandates two balancing entries, a debit and a credit, for every transaction within a business.
• Reconciling bank statements: This task, which is typically done once a month, requires comparing the bank account subledger and general ledger recorded transactions to the bank statements in order to confirm that the accounts are in balance.
• Handling accounts receivable and accounts payable: Accounts receivable includes creating invoices, setting payment deadlines, and following up on late payments. Accounts payable involves ensuring that suppliers are paid promptly.
• Managing payroll: Bookkeepers frequently have the responsibility of checking employees’ time sheets, computing deductions, and managing payroll.

Although they may seem like regular tasks, it’s essential for all businesses to go through this accounting checklist. By using accounting software, many of these tasks can be automated, decreasing the chance of making manual mistakes.

Accounting Tasks

The field of accounting involves tasks that are often subjective and require a broad financial perspective. Accountants are responsible for auditing and analyzing financial data recorded by bookkeepers, and they provide insights and recommendations to businesses based on that information. Some common accounting tasks include:

• Preparing adjusting entries: This task involves adding income and expenses that have already taken place but have not been recorded yet in the bookkeeping, such as interest that has been earned but not yet received.
• Conducting audits: To ensure that financial records are up to ethical and industry standards, accountants conduct regular audits.
• Preparing and filing tax returns: During tax season, accountants can be very beneficial. They manage tax planning, preparation, and filing, which can lower tax liability and reduce the risk of being audited by the IRS.
• Providing financial advice: Business owners can rely on accountants to provide insights into the financial consequences of their decisions and evaluate the overall financial well-being of the company.

Advantages of a Bookkeeper

Hiring a bookkeeper for a small business can offer various benefits such as financial expertise and attention to detail.

• Organization: Organizational skills are a major benefit of having a bookkeeper for any business. Properly organized records of income and expenses simplify the process of reviewing resources and creating a budget for business owners and accountants.
• Attention to detail: Accurate record-keeping by a bookkeeper enables accountants to prepare tax returns with minimal errors or omissions, thus reducing the chances of incurring costly mistakes.
• Lower cost: The fees charged for bookkeeping services are generally lower than those charged by accountants, although the exact amount depends on the level of filing and documentation required by your business.

Advantages of an Accountant

Although hiring an accountant may be more expensive than hiring a bookkeeper, there are some benefits to consider. Here are some advantages to hiring an accountant.

• Tax preparation and filing: For small business owners, it’s important to think about hiring a professional accountant to take care of their tax returns. With the help of an experienced accountant, you can avoid tax-related issues as they will make sure to comply with the necessary regulations and meet all deadlines.
• Strategic advice: An accountant can provide a comprehensive analysis of a business’s financial records and offer valuable guidance to help the business grow, such as identifying ways to increase revenue and reduce costs.
• Legal and regulatory compliance assistance: Accountants possess valuable expertise that can assist businesses in handling tax audits and navigating financial legal issues.

Role Overlap Between Accounting and Bookkeeping

Both accounting and bookkeeping involve working with financial data, require knowledge of accounting concepts, and share a goal of improving a business’s financial situation. In some cases, a bookkeeper at a small company may complete tasks that an accountant would handle at a larger company, like creating financial statements. With the advent of accounting software, companies can automate processes, which allows bookkeepers to analyze and correct errors in the data. Therefore, these roles increasingly overlap.

The Accounting Cycle

Bookkeepers and accountants have a close working relationship. Bookkeepers are responsible for recording and organizing financial data, while accountants analyze the information to offer valuable insights and financial advice for business owners. This process is called the accounting cycle, which aims to provide a precise account of a company’s financial well-being. The accounting cycle consists of eight steps, some of which are performed by bookkeepers, some by accountants, and increasingly some are automated with accounting software.

1. Identify and categorize transactions.
2. Record journal entries.
3. Post journal entries in the general ledger.
4. Prepare an unadjusted trial balance.
5. Make adjusting journal entries.
6. Prepare an adjusted trial balance.
7. Prepare financial statements.
8. Close the books.

Accounting and Bookkeeping with NetSuite Cloud Accounting Software

Small and midsize businesses can benefit from using accounting software, regardless of whether they have a full-time bookkeeper or hire an accountant solely for tax preparation and filing. NetSuite cloud accounting software streamlines transaction recording, payables and receivables management, tax collection, and book closing, allowing for accurate reporting and improved financial asset control. Businesses can access financial data securely and in real-time to efficiently address issues and generate statements and disclosures to comply with various regulatory financial requirements.

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Conclusion

It is crucial for small and midsize businesses to distinguish between bookkeepers and accountants, despite the similarities between the two. Bookkeepers arrange and maintain an accurate record of all financial movements, without requiring any advanced education or certification. Conversely, accountants scrutinize financial data and offer valuable business counsel and financial advice based on their findings. Moreover, small businesses should assess accounting software to identify which parts of the accounting cycle can be automated.