Much like those people who don’t understand the difference between Aussie rules, league and association football and call them all footy, a number of small business owners use the terms accounting and bookkeeping interchangeably. In reality, they are two entirely different things.
Knowing the difference between accounting and bookkeeping will ensure your small business finds the correct help it needs.
An easy start is to say that an accountant can be a bookkeeper but a bookkeeper isn’t an accountant.
Should you hire a bookkeeper or an accountant?
There are a lot of misconceptions when it comes to the difference between a bookkeeper and an accountant. Let’s clear them up so you can better understand the difference between their services.
Straight to the point – many sole traders and smaller busiensses likely only need a bookkeeper, or will do everything themselves. They may want the advanced skills of an accountant on occasion, but less likely. A medium or larger business will want to probably hire both. Why?
- A bookkeeper is focused on the transactional nature of business. They concentrate on the day-to-day operations of a business and produce internal reports for the business owners and managers. This can include payroll, reconcilliation, cash flow reporting, GST and (if qualified) BAS.
- An accountant goes further and creates insights and deeper recommendations and analysis based on this data. They also provide tax advice, undertake compliance work, produce financial statements and income tax returns.
If you require day-to-day support in terms of data and compliance, a bookkeeper is perfect. If you feel you need richer advice, you may wish to consult an accountant.
While there are a lot of cross overs in services, an accountant can play the role of a bookkeeper, while a bookkeeper will not go as far as the services offered by an accountant.
Here are five key differences between accounting and bookkeeping…
1) Qualifications
The main reason accountants may not enjoy being called bookkeepers is because they spent years in university earning a specialist degree before joining the workforce. Some go one step further by acquiring a special qualification such as Chartered Accountant (CA) or Certified Practising Accountant (CPA) certification. However, these are not required for them to practice their profession. Both of these make accounting a specialised industry.
On the other hand, bookkeeping is not necessarily a profession that requires higher education. While some may have very desirable and useful education (most do), such as a degree in a related field or being a certified BAS Agent, these are not necessarily a requirement.
Despite this, a bookkeeper can be an invaluable resource for a small business owner and be highly skilled in what they do. In fact, a bookkeeper that is also a registered BAS agent, or skilled at payroll or GST is likely just what a small business needs.
2) Analysis
Bookkeepers are there to skillfully organise and record financial information and provide essential reporting and advice.
An accountant on the other hand will be skilled in big picture thinking that is suitable for a more complex business. They can take a look at the information collected by the bookkeeper and provide insights and analysis regarding the financial health of your business. They can also make suggestions on how a company can grow, cut costs or use money more efficiently.
Bookkeeping tracks finances and reports this information. It is only through the use of accounting that this data can be turned into strategies to meet the goals you have set for your business.
3) Necessity
Accounting is necessary, but an accountant may not be for a small business. It can help business owners make informed decisions in terms of financial planning and strategic decisions, but it isn’t always needed for survival. Bookkeeping is absolutely required no matter how big or small your company is.
If you currently don’t employ a bookkeeper, chances are you’re performing their tasks yourself. Things such as payroll, expense tracking and the completing and filing of BAS forms are all bookkeeping duties that must be done regularly. Meanwhile, if you aren’t actively handling accounting tasks at your company, it’s likely these aren’t being done at all.
4) Day-to-day
Bookkeepers are far more involved in the day-to-day operations of a business. Since they are the ones responsible for tracking expenses and payments, petty cash and payroll among other financial functions, they will be your go-to person should you want to know more about cash flow.
Accounting doesn’t really involve any of your company’s day-to-day functions. Instead, an accountant is concerned with the big issues facing your company such as taxes or investment opportunities. An accountant can also provide oversight of bookkeeping work, checking to see if it is being done correctly.
5) Price
For most business owners, the only thing that matters is price. And while this is an important consideration, being a cheapskate when it comes to your company’s finances isn’t always a brilliant idea.
Savvy investment in financial services, such as help with BAS, GST, payroll, and tax returns can be a very wise way to free up your valuable time. A properly qualified bookkeeper may be able to achieve all of this for you.
Without question, hiring a bookkeeper will be cheaper than bringing aboard an accountant. But there are other things to consider.
For starters, don’t feel compelled to hire one or both on a full time basis. Doing this is folly. Most small businesses only need bookkeeping services for a few hours each week and there are plenty of qualified bookkeepers out there willing to work on an hourly basis.
While more expensive, many accounting firms also work on an hourly basis or per consultation. Hiring one during tax time or when considering a business expansion could offer value since they will know how to save you money.
One important thing to note: an accountant will need all financial information in order to be helpful while a bookkeeper isn’t reliant on anything from an accountant to do their job. If you plan on hiring an accountant in any capacity, either you or a bookkeeper must have the required data in order. Otherwise, it will be a waste of their time and your money.
You may need both to succeed
According to The Voice of Australian Business survey conducted by Bentleys, two of the four most time-consuming tasks for small and medium-sized enterprises are accounting and bookkeeping. And for business owners who don’t get any help with either, it’s easy to see how these two separate roles can blend together.
Both do deal with finances, but that’s where the common ground ends. What’s more, at some point you’ll need both to be successful. Maybe you can handle some bookkeeping duties, or maybe you have a bookkeeper that can handle some accounting tasks. The truth is that neither is a great solution.
And yet business owners continue to hold on to both roles despite a lack of skills or capacity to take on one, let alone both. Much like the stubborn neighbour with a broken car who refuses to take it to a mechanic, many business owners refuse to seek help when it comes to bookkeeping or accounting. Oftentimes, this is inevitably to the detriment of their company.
Now that you know the difference between accounting and bookkeeping, there are plenty of options available when it comes to finding help with both.
Use our free partner search tool to find a bookkeeper or accountant near you.
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