At Techopedia, we know that accounting and bookkeeping are often confused as the same thing when, in fact, they’re not.
Failing to understand the differences between these roles can result in hiring the wrong person for your business or even worse, result in disorganized operations and hefty penalties for not following the law.
The main difference between bookkeeping vs accounting is scope. Bookkeeping is a specific job, making up just one piece of the broader process of accounting.
In this article, we go into detail on these differences so you can hire the right people, stay compliant, and build a more successful financial future for yourself.
Bookkeeping vs Accounting: Main Differences
|The process of recording and organizing financial transactions in preparation for use by accountants
|The entire process of managing and maintaining financial accounts
|Narrow; focused on accuracy without drawing conclusions
|Broad; focused on painting a financial picture for decision-makers
|• Precisely recording business transactions as they come in
• Keeping track of payment schedules
• Reconciling bank statements
• Running employee payroll
|• Recording, summarizing, analyzing, and reporting actionable financial data
What Is Bookkeeping?
Bookkeeping is a subset of the accounting process. It involves recording and organizing financial transactions.
Companies receive income and spend money much the same way people do—with credit cards, online payments, and bank transfers. These disordered transactions need to be organized and recorded in the company’s accounting software so accountants can make sense of them later on. This is the job of the bookkeeper.
The focus is narrow, with accuracy, organization, and transparency being the most important.
What Does a Bookkeeper Do?
The main duty of a bookkeeper is to use accounting software to move raw transactions into the appropriate categories. This includes scrolling through large lists of raw financial data, such as sales transactions, invoices from contractors, electricity bills, and so on.
For example, the bookkeeper places sales transactions into sales accounts, contractor invoices into contractor expense accounts, and electricity bills into utility expense accounts.
Since large companies often have thousands of accounts broken down into exquisite detail, this task alone can take a lot of effort.
Other duties include:
- Maintaining ledgers: Tracking money owed to and from a company
- Reconciling bank statements: Matching bank balances to the balances in the accounting software
- Processing payroll: Ensuring all company employees are paid the right amounts at the right times
Don’t get thrown off track by these other duties. The key thing to remember is that bookkeepers are concerned with the close-up and immediate—never the bigger picture.
What Is Accounting?
Accounting is the entire financial management process of a company.
As we mentioned earlier, bookkeeping is a small part of the accounting process—the first part, to be specific.
Accounting begins with bookkeeping and moves on to summarize and interpret the financial data recorded by bookkeepers. This entails importing the data into spreadsheets or accounting software, making calculations, and ultimately producing a series of reports or financial statements.
Invested parties then use these reports to make informed decisions. For example, company management would use them to decide whether to open a new store location or how much to increase prices over the next year. Stakeholders, like investors, would use them to decide whether to sell a company’s stock or buy more.
With accounting, the focus is broad, and the emphasis is on turning raw financial data into actionable insights for decision-makers.
What Does an Accountant Do?
The main duty of an accountant is to take organized financial data, most often prepared by bookkeepers, and turn it into actionable reports for decision-makers.
Responsibilities can include the following:
- Tax management: Preparing and filing company taxes, plus long-term planning to stay compliant with changes to the tax code.
- Financial reporting and analysis: Assembling reports and financial statements every month, quarter, and year for review by company managers and owners.
- Budgeting and financial planning: Using past financial data to estimate sales, expenses, and profit for the future, plus creating budgets that accurately reflect these predictions.
- Bookkeeping: For many small businesses with lighter finance needs, accountants double as bookkeepers.
It’s important to note that at larger companies, accountants have very specific roles, and usually, only financial managers and company executives are privy to all the big-picture accounting reports at the end of the process.
However, for all companies, the financial data used by accountants comes from the initial recording and organizing completed by bookkeepers.
Bookkeeping is the short-term process of recording and categorizing financial transactions, whereas accounting encompasses the entire operation of managing company finances. The accounting process involves turning bookkeepers’ organized data into useful reports for managers and stakeholders.
Read our article on managerial vs. financial accounting for a deeper dive into the different types of accounting roles.