Bookkeeping or accounting; how to choose?
Often, when we think about the differences between bookkeeping and general accounting, we have a hard time distinguishing between each process. Although bookkeeping and accounting professionals share common goals, they are involved at different stages of your company's financial cycle.
To put it simply, bookkeeping is more transactional and administrative, recording financial transactions. It is a process that is more oriented towards establishing a financial picture by outlining the various inflows and outflows of capital of the company. Accounting is a more subjective approach and gives you an overview of the financial health of your company based on accounting information. Subjective, not because it is inaccurate or lacks rigor, but rather because accounting makes interpretations and projections based on this data.
In this article, we will explore the differences between the roles of accountants and bookkeepers, and their respective areas, to help you determine which of these services
General AccountingAccounting is a high-level process that uses financial data compiled by an accountant or business owner to produce financial models. The accounting process is more subjective than bookkeeping, it is often intended to provide balance sheet forecasts and advice on the direction of the business.
- Preparation of accruals (recording expenses that have occurred but have not yet been recorded in the accounting process)
- Review of the company's financial statements
- Analysis of operating costs
- Completing income tax returns
- Helping the business owner understand the impact of their financial decisions
Analyzing financial reports is a key part of the accounting process because it helps you make business decisions. The result is a better understanding of true profitability and an awareness of the company's cash flow.
Accounting transforms general ledger information into information that reveals the overall state of the business and the direction in which it is headed. Business owners often turn to accountants for help with strategic tax planning, financial analysis, forecasting and tax reporting.
BookkeepingBookkeeping is the process of recording an individual's or company's day-to-day transactions, organized in a consistent manner. It is a key element in gathering the financial information needed to run a successful business. Bookkeeping does not project, but is an essential tool for decision making.
- The production of invoices
- Recording financial transactions
- Recording debits and credits
- Preparing financial statements (balance sheet, cash flow statement and income statement)
- Maintaining and balancing subsidiaries, ledgers and historical accounts The preparation of payrolls.
General ledger maintenance is one of the main components of accounting. The general ledger is a basic document in which the accountant records the amounts of sales revenues and expenses. This is called recording. The greater the number of sales, the more often the ledger is recorded. A ledger can be created using specialized software, a spreadsheet or simply a lined sheet of paper. At 321sc we prioritize bookkeeping with Quickbooks software, it is a flexible and powerful tool for this process. Read our article to know why!
The complexity of an accounting system often depends on the size of the business and the number of transactions made each day, week and month. All sales and purchases made by your business must be recorded in the general ledger, and some items must be supported by documentation. The CRA indicates on its website which business transactions must be supported by documentation.
Accountant and bookkeeper; different rolesBookkeepers and accountants sometimes do the same job, but their skills are different. In general, the bookkeeper's role is to record transactions and keep the business financially organized, while accountants provide advice, analysis and are more qualified to advise on tax matters.
Role of BookkeepersBookkeepers are generally not required to have formal training. To be successful in their work, bookkeepers must be concerned with accuracy and knowledge of key financial topics. Generally, the work of bookkeepers is supervised by an accountant or by the owner of the small business for which they are doing the bookkeeping. A bookkeeper cannot call himself an "accountant" because he is not a member of the Chartered Professional Accountants.
At 321sc, our bookkeeping specialists are mainly accounting technicians with at least 2 years of study in the field. This allows you to rely on our rigor and professionalism, without paying a CPA fee.
Role of accountantsTo qualify for the title of accountant, you generally need to have a degree in accounting. For those without a specific accounting degree, finance degrees are often considered an adequate substitute.
Accountants, unlike bookkeeping specialists, can also obtain additional professional certifications. For example, accountants with sufficient experience and education can earn the Certified Professional Accountant (CPA) designation, one of the most common types of accounting designations. To become a CPA, an accountant must pass a uniform examination and have experience as a professional accountant. These required qualifications are a determining factor in the cost of an accountant.
Accountant or bookkeeping specialists: how do you choose the right specialist for your business?Start-up businesses often get by with their own accounting and bookkeeping responsibilities. In the long run, it would not make financial sense to continue doing so, as many errors may creep into your accounting records, costing you time and money. There are several telltale signs that you need professional accounting and bookkeeping help.
If you are facing:
- Problems with financial statement maintenance ;
- Difficulty reconciling accounts each month;
- Confusion in the use of the chart of accounts;
- Cash flow problems.
Many businesses do not need to hire a bookkeeping specialist and invest in the services of a dedicated accountant. The need is often concentrated around tax preparation time and during tax season. Having a bookkeeper who regularly produces financial statements will provide you with enough data for an accountant to process tax returns.
As the business grows, you may need to expand your accounting team to help manage your cash flow beyond tax season.
You may want to acquire additional funds for your business so that you feel more comfortable obtaining additional cash in an emergency. Diligently handled financial statements over a long period of time can be a kind of insurance to ensure that you receive the investment you need. An accountant can help you produce regular financial reports.
That said, most small businesses can follow the model of hiring a bookkeeper for monthly collaboration and investing in professional assistance during tax season. Good bookkeeping will make your accountant's job much easier, which will likely reduce the cost of their services.
Important points about bookkeeping and accountingBookkeepers and accountants share a common goal of helping businesses get a handle on their financial record keeping, tax reporting and overall financial health. Bookkeepers typically record business transactions in the books, ensuring their accuracy and proper filing. They are also responsible for producing the necessary financial statements. Accountants, on the other hand, advise businesses on the basis of these financial statements and help them meet their tax obligations. Although their practices generally differ, they may overlap at times, creating a certain degree of confusion as to which specialist is best suited for a business. Therefore, before you start looking for an accountant or bookkeeping specialist, a good rule of thumb is to carefully analyze your business needs and available resources. You can then decide whether to hire an in-house specialist, outsource accounting or bookkeeping tasks, or hire a public accounting firm.
Hiring accounting professionals can be considered a real investment, often paying you more in revenue and savings than you ultimately pay. Good financial management, as well as diligent record keeping, is crucial for businesses. When you have a well-established business, even a small one, working together can allow you to feel secure knowing that financial experts are watching over your business to make sure it stays in tip-top shape!
For all your bookkeeping needs and to ensure your business is financially sound; let 321 sc give you the tools to grow!