Bookkeeping vs. Accounting: The Key Differences

Knowing the difference between bookkeeping and accounting is important to the growth of a business. Bookkeepers keep precise, accurate, and chronological records of a company’s financial activities. Accountants analyze this data to create a snapshot of a business’s health and offer budgeting, planning, and financial advice.

In casual conversation, “bookkeeping” and “accounting” are often used interchangeably. And they do have similarities and share common goals. But in the finance industry, they have distinct functions and implications for running your business.

Bookkeepers’ work is more administrative in its scope and concerned with a company’s daily financial transactions. They create a physical record of a business’s financial activity—tracking any money that comes and goes. Bookkeeping is one piece of accounting, and serves as the foundation of the practice.

Meanwhile, accounting has a broader scope, relying heavily on bookkeeping records to prepare financial reports and statements. By analyzing this data, an accountant can interpret the overall financial health of a business. They can then use this financial information to make informed choices about how a company operates.

This article will take a deeper dive into the main differences between bookkeeping and accounting.

Key differences between bookkeeping and accounting

While bookkeeping focuses on recording a business’s financial activities, accounting uses this information to make informed decisions about a company’s financial state.

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Bookkeeping responsibilities

• While bookkeeping is just one piece of a company’s accounting system, it is that system’s foundation. Accurate and comprehensive bookkeeping is a necessary part of understanding a company’s financial health.
• Bookkeeping—which is clerical—creates a physical record of all purchases and sales that a company completes. Debits and credits from all transactions are recorded chronologically in the company’s general ledger often using accounting software, and much of the role is data entry-related.
• These transactions should be easy to read, accurate, and well organized. Accountants may later use this information for financial analysis and to provide insights into how a company operates. If data is incorrect or difficult to find, the company might not accurately assess its overall health.
• Bookkeeping operates on the principle that every debit made to an account in the company’s ledger must have an equal credit to another account. It also maintains that all accounts must balance.

Accounting responsibilities

• Accounting is a higher level process than bookkeeping, and is also more subjective. Accountants review a company’s transactional data—provided by the bookkeeper—to create financial reports and statements over specific periods.
• Accounting statements are integral to making better business decisions, as they provide insights into how a company operates, its profits and cash flow, and how financially healthy the business is overall. This financial forecasting can impact future operations.
• In addition to analyzing transactional data, bank statements, and other financials, accounting prepares budgets and annual tax returns to submit to state and federal departments, such as the Internal Revenue Service (IRS).

What a bookkeeper does

As overseers of a business’s financial transactions and data compliance, bookkeepers bring six primary services to your company.

• Recording financial transactions: Your bookkeeper will record all of your company’s sales and purchases in a general ledger using bookkeeping software.
• Posting debits and credits: In addition to recording transactions in the correct accounts, your bookkeeper will apply debits and credits to account balances.
• Producing invoices: Another task of bookkeepers is preparing invoices and sending them to clients and customers requesting payments on behalf of your company. They might also handle paying supplier invoices.
• Preparing financial statements: Bookkeepers will use the data they compile to create various financial statements for accountants to review, including balance sheets, cash flow statements, and income statements.
• Maintaining and balancing subsidiaries, general ledgers, and historical account information: While bookkeepers focus on recording your company’s daily transactions, they might also handle financial data for any subsidiaries your company owns and maintain your company’s historical data, updating this information as needed.
• Completing payroll: Some bookkeepers also take on human resources and payroll duties, processing employee paychecks and tax forms.

If your company needs the expertise of an experienced bookkeeper, you can find one on Upwork. They typically charge anywhere from $11 to $25 an hour.

What an accountant does

The accounting process is more complex than bookkeeping, and you can expect an accountant to perform higher level tasks for your company.

• Preparing and adjusting entries: At the end of every accounting period, your accountant will review your business’s books and adjust them, so they more accurately reflect the state of your business.
• Analyzing costs of operations: Accountants will also review your company’s variable and fixed costs at the end of each accounting period, to determine the accurate cost of operations.
• Reviewing company financial statements: Using data recorded in your company’s books, your accountant will review your financial statements at the end of each accounting period.
• Completing income tax returns: Your accountant can take on many tasks for your business, including preparing and filing annual tax returns.
• Providing information for growth opportunities, forecasts, and business trends: Financial forecasting is a big part of an accountant’s job. They’ll use all of your company’s data on sales and purchases—any money that comes in and goes out of your business—to create a financial plan that estimates projected income and expenses for your company.
• Providing insights for financial decisions: An accountant’s financial analysis of a company can help business owners make decisions on operations.

If your company is looking for an accountant, you can find the right person for the job on Upwork. Accounting experts on Upwork typically charge $12 to $32 an hour.

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Bookkeeping and accounting credentials

Bookkeeping can be a career for anyone who’s finance-oriented or enjoys math. While a degree isn’t necessary to become a bookkeeper, some employers will look for candidates with postsecondary education.

Bookkeepers aren’t required to be certified either, but there’s accreditation and licensing available. When hiring a bookkeeper, you want someone with the right qualifications to join your team. When reviewing their background and experience, look for training and accreditation through organizations and institutions like:

• American Institute of Professional Bookkeepers
• National Association Certified Public Bookkeepers
• Professional Bookkeeper Certification Course
• Digital Bookkeeper Association
• Ashworth College
• Penn Foster College

Also remember that while an accountant can perform bookkeeping duties, a bookkeeper can’t perform accounting duties without proper training and certification.

A bachelor’s degree from an accredited college in accounting, finance, or a related field is necessary even for entry-level work as an accountant. And if you need someone to take on certain advanced tasks, you’ll want to look for someone with a master’s degree or specialized certifications such as a Certified Public Accountant (CPA) or Certified Financial Analyst (CFA).

When hiring an accountant, make sure they’ve earned a degree or have been certified or accredited in the field by institutions like:

• Association of International Certified Professional Accountants
• U.S. Career Institute
• Purdue University
• Southern New Hampshire University
• University of North Carolina Kenan-Flagler
• University of California Berkeley
• Miami Dade College
• Keiser University
• Indiana University

Bookkeeping vs. accounting: FAQs

Can a bookkeeper become an accountant?

Accountants can perform the tasks of a bookkeeper, but a bookkeeper legally can’t perform some accountant-specific tasks in most municipalities. These services include audits, reviews, and issuing opinions on financial statements. Before you start the hiring process, check with your local laws to see what the legal requirements in your area are for accountants and bookkeepers.

Do accountants perform bookkeeping tasks?

While accountants can perform bookkeeping tasks, and do so when necessary, this isn’t considered the best use of their time or your money.  The qualifications for accounting are more strict, and accountants typically charge more. As you hire an accountant for your company, you should determine the scope of their work in advance and have as much of the bookkeeping done for them as possible.

How much does it cost to hire a bookkeeper versus an accountant?

Accounting requires more education than bookkeeping, and accountants also provide services that include financial and operational planning. This allows accountants to charge more for their work. On Upwork, accounting experts tend to charge between $12 and $32 an hour, while bookkeepers charge between $11 and $25 an hour—depending on the scope of the work you’re hiring them for.

Find the best financial support

Bookkeepers can help your business keep accurate and comprehensive records of all your transactions. Accountants can use this data to create a snapshot of your company’s financial health and provide suggestions to help you make operational decisions moving forward.

If you’re looking to beef up your accounting team as a small business owner—either for the tax season or a specific project—a freelance bookkeeper or accounting professional can help take your company to the next level. Upwork’s platform can connect you with the talent you need to keep the best financial records for your company.