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What’s the difference between accounting and bookkeeping?

by Craig Boyle

Confused between accounting and bookkeeping? You’re not alone! Often misunderstood, they are different skills which are vital to the operations of a business. Read on to discover the difference between accounting and bookkeeping – and how studying both can make you an indispensable employee…

Accounting and bookkeeping are two related, but very distinct, financial skills that help keep businesses running. Bookkeeping refers to the practice of recording all manner of financial transactions in order to build records. Accounting is a more in-depth skill that involves analysing finances, creating reports and often strategising to improve performance. However, despite the differences they are indispensable skills, here’s why:

What is Bookkeeping?

It’s a legal requirement that businesses keep financial records which must date back at least five years – which makes the practice of bookkeeping essential. Bookkeeping is the practice of creating and maintaining these records, which can be done through both manual and automatic techniques.

Bookkeepers are typically in charge of processing all invoices, payments and receipts in a business. They manage payroll, prepare financial statements and track loans and debt repayments. The financial information bookkeepers log includes:

  • Purchases
  • Sales
  • Expenses
  • Payroll

Why is bookkeeping important?

Even if it wasn’t a legal requirement, bookkeeping is important as it helps showcase how well a business is doing from a financial perspective. If a business is not making money, the bookkeepers are the first to know. A good bookkeeper can see exactly what financial state a business is in, and help to ensure there’s a cash flow available.

What is Accounting?

Accounting is the process of analysing financial data. You’ll study financial statements and business reports (such as those prepared by bookkeepers) to interpret data, report on financial conditions and help improve the financial performance of the business. Accountants usually hold a Bachelor’s level qualification and typically they review a bookkeeper’s work.

Why is accounting important?

While a bookkeeper records financial information, an accountant acts on it. Without accounting, it would be impossible for a business to grow. Accounting involves sorting, retrieving, summarising and presenting data through external reports and analysis to business owners, shareholders and even the public (in the case of publicly listed companies). A qualified accounting professional must often prepare these reports.

In addition to external reporting, accounting involves supplying information to business owners or managers to keep a business healthy. These reports are generally internal-only but can help identify financial issues, improve efficiency and generally aid business growth.

Accounting & Bookkeeping

The main differences between accounting and bookkeeping

The main difference between accounting and bookkeeping is that bookkeepers are tasked with the collection of data, while accounting involves using that data to drive business change.

In short, the differences come down to:

  Bookkeeping Accounting
Basic premise Collect and prepare data Investigate and strategise using data
Standard duties Organise records for the purpose of legal and operational requirements. Does not prepare financial statements Gauge financial situations and communicates this to wider management. Prepare financial statements
Specialisms There is both single entry and double entry bookkeeping Accounting can include areas such as budgeting, loan proposals and more strategic measures such as EBITDA.

The importance of understanding the difference between accounting and bookkeeping

Many small businesses employ finance professionals who combine both accounting and bookkeeping into one role. In a larger corporation, you may find yourself employed solely as a bookkeeper or accountant. For that reason alone, understanding the difference between accounting and bookkeeping is important.

However, as technology improves, more and more businesses are allowing software to handle their bookkeeping process. This makes it vital that those new to the field are also competent with accounting tasks.

Combining accounting and bookkeeping skills

The combination of both accounting and bookkeeping skills allows you to become a more flexible financial worker. Whether your business needs to create records or interrogate data, you’ll be well equipped to help analyse data, create amazing reports and help drive effective change.

By studying a modern, always-up-to-date FNS40217 Certificate IV in Accounting and Bookkeeping, you can ensure you’re familiar with the digital financial tools available, the latest techniques employed and can enter your future career ready to make a real difference.

Ready to secure a future in finance? Now that you grasp the difference between accounting and bookkeeping, you can see how each discipline plays into one another – and why combining them into a single course is the best way for a student to maximise their career potential. If you’d like to get a career in finance, or handle the finances of your own business, enrol online today.

9 Responses

  1. That’s cool that an accountant acts on financial information. Recently, my brother has been trying to find out what he wants to do. I’ll have to look into accounting schools he can go to.

  2. I had no idea that bookkeepers were in charge of so much in the business; payroll, preparing financial statements and even tracking loan and debt repayments. I bet it would be such a help to a business owner to be able to hand all of that over to the bookkeeper so that they can focus on other areas of the company. Thank you for all the information, this was something that I hadn’t given a lot of thought to before.

  3. Mark says:

    I always believed that they both are the same, but thanks to this informative article. I really appreciate the efforts you’ve put in this blog post.

  4. kevin says:

    Thanks for sharing this information

  5. Very easy differentiation between accounting and bookkeeping services. I totally agree with a bookkeeper who records financial information, an accountant acts on it. Before doing taxation, Bookkeeping records are also needed. In the accounting world, each element is linked with each other perfectly.

  6. I like that this post mentioned bookkeeping is important for any business as it ensures we keep track of all our finances and keeps it all balanced. Assuming I own a business, I do believe that it would be best for me to have a systematic bookkeeping method. I will keep this tip in mind for future purposes.

  7. Josh says:

    Great post about accounting and bookkeeping. I really appreciate your efforts put on this blog. Thank you for more information.

  8. Martin Tiano says:

    Accounting is the process by where a company’s financials are recorded, summarized, analyzed, consulted and reported on. Bookkeeping is the recording part of this process, in which all of the financial transactions of the business (consisting of income and expenses) are entered into a database.

  9. Toby Ryan says:

    Thank you for mentioning how your business would be incapable of growing without accounting. My brother is thinking about opening a law firm this summer but needs to find an accountant that can help him keep track of his budget so that he can determine how many employees he should hire each year. Hopefully, he can grow his business once he hires an expert that can help him.

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