The terms “accounting” and “bookkeeping” are often uttered in the same breath and, in fact, used interchangeably. However, these terms are not synonymous, although they are interdependent. While bookkeeping records your business’s financial details, accounting interprets and compiles them into meaningful reports.
Without proper bookkeeping, accounting becomes confusing, time-consuming, and inaccurate. And without accounting, the financial data so painstakingly gathered by bookkeeping is irrelevant and purposeless. Without both, the vital tasks related to your business, such as tax filing, budgeting, forecasting, and decision-making, become extremely difficult.
So, how exactly are the two terms different from each other, and why do you need to know that?
Difference Between Bookkeeping and Accounting
Bookkeeping is all about maintaining detailed, organized, and up-to-date records of every financial transaction that occurs within or in relation to your business, including the purchase of equipment, sales of products or services, payments to vendors, marketing expenses, and even stationery or utility expenses.
Accounting uses data collected through bookkeeping to analyze and interpret figures, translating them into valuable, insightful statements and reports that help entrepreneurs make informed business decisions.
Thus, a strong bookkeeping foundation enables accounting to help you build a lasting business. Although the two share a similar objective and use financial data to achieve it, when it comes to hiring a bookkeeper and an accountant, the skill sets, roles, and responsibilities are quite different.
The Role of a Bookkeeper
A bookkeeper deals with recording financial details, categorizing them, managing cash flow, tracking receipts and invoices, reconciling bank statements, and more. Such tasks need a person who is alert, cautious, organized, and focused, with keen attention to detail, to ensure no number goes unrecorded.
Hence, when hiring a bookkeeper, you must look for these traits and ensure the person is well-versed in the bookkeeping requirements of your industry. For instance, bookkeeping for restaurants differs from that for a manufacturing unit. Previous industry experience can go a long way toward making accounting more effective. After all, major decisions and growth plans for your business will be based on the bookkeeper’s records.
The Role of an Accountant
An accountant’s task is to read between the numbers recorded by the bookkeeper and identify trends or patterns in them to help chalk out better plans for your business. Their job is to answer the why and how of your financial diagnostics: why are we spending so much in one particular area, why are the profit margins low, how can we use the budget to its optimum without pumping in more money, which products are doing the best, and which ones can be done away with? It is the accountant’s responsibility to answer all these questions by compiling the numbers presented by the bookkeeper into financial statements and analyzing them.
An accountant also helps find financially viable solutions to the problems posed by these questions. They ensure your business is compliant with the CRA’s rules and regulations, while also guiding you on how to reduce your tax liability using the correct deductions and tax benefits you might be eligible for.
From forecasts, budgeting, and effective cash flow management strategies to investment ideas and taxation tips, an accountant plays a major role in taking your business to the next level. When looking for an accountant, consider their experience and knowledge of your industry and tax laws, as well as how they have helped past clients grow their businesses.
How Accounting and Bookkeeping Contribute to Your Business
Accounting and bookkeeping go hand-in-hand. If bookkeeping is the foundation, then accounting is a crucial pillar of your business. When done properly, both these tasks can prove to be a catalyst for:
- Boosting financial performance through effective cost reduction and revenue growth strategies.
- Improving resource allocation, investment strategizing, and risk management to make better-informed decisions.
- Building investor confidence through effective reporting.
- Maintaining high compliance standards.
What Entrepreneurs Should Know
While large companies and corporations have entire teams of bookkeepers and accountants to handle the high transaction volumes they generate each day, many small business owners are unsure whether they need both. Most business owners with lower transaction volumes handle these tasks themselves or hire just one person for both. While this certainly saves money, it can also prove to be expensive in the long term.
When your transaction volume picks up, bookkeeping and accounting keep piling up, making tax filing a nightmare. So, how do you strike a balance between budget and necessity when hiring for these tasks?
When to Hire a Bookkeeper?
If your business has a high volume of transactions daily, a large staff on payroll, and specific recordkeeping needs (like in the restaurant business), then hiring a professional bookkeeper is a better option than do-it-yourself (DIY) bookkeeping. While bookkeepers can also do certain accounting tasks, such as compiling reports or statements, they may or may not be qualified to analyze or advise on financial planning for your business.
When to Hire an Accountant?
If your business needs direction and guidance on how to optimize your revenue, improve profitability, enhance cash flow, and read the market trends to improve sales, you need an accountant. An accountant may be able to do bookkeeping tasks, but it could be expensive. You could use their time and skill to help you with other important tasks, such as strategizing, budgeting, and tapping into potential investor interest.
Contact MW&CO in Woodstock to Help You with Bookkeeping and Accounting Needs
If you don’t have a full-time bookkeeping and accounting workload, you could consider outsourcing these tasks to an accounting firm and get billed only for the work. An accounting firm can adjust and scale accounting and bookkeeping tasks as your company grows. At MW&CO, our accountants and bookkeepers can provide services such as tax filing, ledger book preparation, and the preparation of financial statements and reports. To learn more about how MW&CO can provide you with the best accounting and bookkeeping services, contact us online or by telephone at 519-539-6109 or toll-free at 1-877-539-6109.