What are the Differences Between Bookkeeping and Accounting?

While many people may use the terms interchangeably, there are important differences between bookkeeping and accounting. The primary distinction is in how the two fields handle the financial information that is their responsibility. Bookkeeping involves recording that information properly. Accounting analyzes that information and presents it in a form that can aid in decision-making and future planning.

What is Bookkeeping?

Bookkeeping requires using an established system to accurately enter financial data. This involves tasks like preparing sales invoices, mailing out bills for services rendered, entering payments received, processing company payroll, inputting bills from vendors and paying those bills. Bookkeepers handle the details of daily life and maintain records of all transactions, but they don’t interpret that information.

What is Accounting?

If bookkeeping is about keeping track of the trees, accounting oversees the forest. Accounting practices have established the procedures bookkeepers use when recording financial transactions. Once the information is documented, accounting theory and applications can be used to analyze it with the goal of creating reports that can help a business understand its financial strengths and weaknesses, map out strategies for improvements, and plan future growth.

What Education is Required to Become a Bookkeeper?

Attention to detail, basic math skills, and a familiarity with the computer programs commonly used in an office environment are helpful, but there are no real educational requirements necessary to become a bookkeeper. In fact, in many small businesses, the owner or a family member initially serves as the company’s bookkeeper. When hiring someone to keep the books, most employers require a high school diploma. Some prefer that their bookkeepers have an associates degree in bookkeeping or business. Others look for bookkeeping professionals who are certified bookkeepers, meaning they have passed the exam held by the American Institute of Professional Bookkeepers, the national association for the bookkeeping industry.

What Education is Required to Become an Accountant?

Becoming an accountant requires at least a bachelor’s degree; most certified public accountants hold a master’s degree. To become a CPA, people must fulfill an experience requirement and earn 150 college credits, which is more than the number required for a bachelor’s degree. They must also pass the Uniform CPA Examination administered by the American Institute of CPAs.

How do Bookkeepers and Accountants Work Together?

As Business News Daily explains, bookkeeping and accounting are intrinsically linked. Bookkeepers depend on accountants to determine what financial records are necessary and what the best processes for logging those records are. Accountants depend on the detailed work completed by bookkeepers to provide them with accurate data so that they can offer analysis, interpretations and useful recommendations. In large businesses, bookkeepers often work under the supervision of an accountant. In smaller businesses that don’t have an accountant on staff, the bookkeeper often uses accounting software like Quick Books or Peach Tree to provide the process for maintaining records and then contracts with an accountant for advice on more complex tasks, like taxes.

Bookkeepers do not require a formal education, just the ability to process daily financial matters and accurately log that data. Accountants must earn a college degree that prepares them to look at financial data, interpret that data, and turn it into reports and recommendations that are useful for decision-makers. Although people often use the terms as if they were synonyms, there are important differences between bookkeeping and accounting.