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:
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.
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:
|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.