When managing a company’s finances, it is essential to understand the difference between accounting and bookkeeping. These services are pivotal for keeping your books accurate and organized. However, there are some essential differences that can help you to understand and decide which one is essential for your business.
This blog will discuss key differences between bookkeeping and accounting services. It will provide a comprehensive guide to help you in making the best decision for your business.
The scope of Accounting and Bookkeeping
Both accounting and bookkeeping services are pivotal for running a successful business. However, the scope of their services can vary to a huge extent. Bookkeeping is a relatively basic accounting service. It focuses on tracking expenses and income, preparing financial documents and recording transactions. But, it does not involve data analysis.
On the contrary, services related to accounting are highly comprehensive. They provide analysis of financial records for understanding the financial health of a business and making recommendations for potential improvement. Accounting also includes forecasting, budgeting, tax preparation, compliance, strategic planning and other financial services.
Analysis level in Accounting and Bookkeeping
Bookkeeping mainly focuses on recording transactions accurately. Bookkeeping focuses on regular financial tasks such as accounts payable and receivable, inventory management, payroll etc. It also provides the data that accounting requires for the purpose of analysis and decision-making.
Accounting, On the other hand, focuses on interpreting, analyzing, classifying and summarizing financial data. Accounting also provides a comprehensive level of analysis in comparison to bookkeeping as it involves making important decisions for increasing a company’s financial growth. Moreover, accounting looks at a broader level of a company’s financial activities to determine failure or success.
Tools used in Accounting and Bookkeeping
Bookkeeping utilizes spreadsheet software, such as Microsoft Excel and other tools that specialize in accounting software. Bookkeepers may not have the extensive knowledge as accountants. However, they can provide a comprehensive analysis of financial statements.
In comparison, accounting services require complex software as well the professional competence and expertise of an accountant. An accountant can also review financial statements for potential discrepancies and can provide further analysis for potential clients.
Frequency of Service in Accounting and Bookkeeping
Bookkeeping and accounting services involve record-keeping. However, service frequency can be relatively different. Bookkeeping services are available on a regular basis including monthly, weekly or quarterly basis. On the contrary, services related to accounting, specifically auditing and taxation, are given once or twice annually.
Accounting services involve a comprehensive analysis and reporting and are available when a company preparing financial statements. Organizations must develop an understanding of the services frequency to decide the services that fulfill the business requirements.
Academic qualifications for bookkeepers and accountants
Usually, bookkeepers do not need any specific academic qualification. Bookkeepers must be meticulous in their task and must have knowledge regarding specific financial matters to achieve success. The work of a bookkeeper is under supervision by an accountant or a small business owner whose books they are keeping. Due to this reason, bookkeepers are different from accountants.
Accountants, on the contrary, require an undergraduate degree in accounting. A professional qualification in finance is suitable for an individual that does not have a particular accounting degree. Unlike bookkeepers, accountants can obtain different professional certificates. For example, accountants with adequate education and experience can receive Certified Public Accountant (CPA), one of the most prestigious accounting qualifications. To obtain CPA, an accountant needs to pass the Uniform Certified Public Accountant exam and have relevant professional accounting experience from one of the Canadian accounting firms.
Selecting between bookkeeping and accounting services
Selecting between accounting and bookkeeping services depends mainly on the particular requirements of a business. If a business requires basic financial statements as well as record-keeping, service related to bookkeeping is sufficient. However, if a company needs comprehensive financial insights, tax planning, and strategic financial guidance, then it can engage a competent financial accountant. Many Canadian accounting firms offer both services related to accounting and bookkeeping. It depends primarily on your business operations which service you want to avail.
If you do not have a reporting or financial recording system in place but have sufficient knowledge on how you will spend your money, you will require a bookkeeper. But, if you need someone that can analyze your financial records and provide advice, you will require the services of an accountant. Your accountant can evaluate and analyze your current financial decision-making process as well as recommend different ways to better incorporate financial data.
Summary
It is essential to understand the difference between accounting and bookkeeping for the purpose of making decisions regarding a strategy for financial management. By effectively leveraging the expertise of accountants and bookkeeping, you can effectively streamline your financial processes, gain comprehensive insights, and make sure your business is on the path to growth and financial sustainability.
