People often use the terms bookkeeping accounting, and payroll interchangeably. It is true that these three terms are deeply linked with one another, but these are not the same. These terms are quite different from one another. In order to keep your finance department well-figured, It is important to know the difference between these terms. No matter either you are a business owner or an employee in the finance department
Bookkeeping vs Accounting … Overview
Bookkeeping and accounting both come under the umbrella of the finance department and are closely related to each other. This puzzles the mind of the common layman and he considered that both are synonyms. In reality, bookkeeping and accounting deal with sale, purchase, output, and taxes but in an entirely different way.
Bookkeeping deals with recording, packing, and recovering commercial transactions for a party, corporation, or nonprofit organization.
Accounting is the process of managing financial records, and later figuring out, justifying, and reporting the outcomes or results.
1. The Difference in Bookkeeping Tasks vs Accounting Tasks
The difference between bookkeeping and accounting can be well understood by viewing the tasks of both. The discrimination in the tasks of bookkeeper and accountant helps to get a better understanding to readers.
Bookkeeping tasks include
- Record and categorize the daily expenses and payments
- Send customer invoices
- Conduct monthly reconciliations of bank
- Generate monthly financial statements
- Process payroll
- Provide annual financial and tax documents to the accountant at year-end.
- Preparing to adjust entries
- Evaluate the cost of operations
- Give honest suggestions to the business owners during financial decision making
- Analyze and review financial statements
- Access financial health and financial forecasts
- Perform audits
- Conduct tax planning, File tax returns, and protect tax advisory
2. Bookkeeping Functions vs Accounting Functions
Bookkeeping is the method of recording everyday transactions with consistency. It is a basic component that collects all the financial information needed to run a successful business. Bookkeeping consists of the following functions
- Performing financial transactions
- Posting debits and credits archival
- Producing invoices
- Formation of financial statements (balance sheet, cash flow statement, and income statement)
- Managing and balancing subsidiaries, general ledgers, and historical accounts
- Processing payroll
One of the major components of bookkeeping is managing a general ledger. The general ledger is a primary document where a bookkeeper notes the amounts from purchase and expense vouchers. This is known as posting. The higher purchases that are performed, the more repeatedly the ledger is posted. A ledger can be made simply on a lined sheet of paper, on a computer spreadsheet, or on specialized software, depending upon the nature and complexity of business, and required efficiency.
Accounting is a high-grade process that handles financial statistics assembled by a bookkeeper or business owner to build financial designs. The accounting handling is more subjective than bookkeeping and highly dependent on transactions. Generally, accounting consists of:
- Making adjusting entries that include recording charges that have taken place but aren’t still documented in the bookkeeping process
- Analyzing business financial statements
- Analyzing costs of operations
- Determining income tax returns
- Subsidizing the business owner in figuring out the impact of financial choices
Analyzing financial decisions is a key part of the accounting process as it helps in making good business decisions. Accounting shifts the knowledge from the general ledger into judgments to display the real and clear picture of the business, it shows the direction to progress. Business owners will repeatedly seek accountants for help with critical tax planning, analyzing their economic position, concluding, and tax filing.
3.Bookkeeper vs Accountants….In Terms of Qualification
Sometimes bookkeepers and accountants do the same work but the difference is marked in their skillsets. Generally, a bookkeeper is responsible to manage and organize financial records but an accountant is responsible to analyze the financial status of the business and providing suggestions on tax filing matters.
Typically, bookkeepers aren’t needed to have any precise education. To be fruitful in their work, bookkeepers demand to be sticklers for efficiency and informed about key financial matters. Generally, the bookkeeper’s job is inspected by either an accountant or the small business owner by himself whose lists they are operating. On the basis of their qualification and job description, bookkeepers can’t claim themselves as “accountants.”. Yet they work under the supervision of an accountant.
Generally, an individual must have a bachelor’s degree in accounting To qualify for the title of an accountant. Those that lack a specific degree in accounting do not lose hope as finance degrees are often granted a capable backup.
Bookkeeping vs payroll…Brief Overview
Unlike bookkeepers, Accountants are also able to acquire other professional certifications. For example, qualified and experienced accountants can obtain the title of Certified Public Accountant (CPA), a popular accounting designation. In order to become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a professional accountant.
Now you have a complete idea about bookkeeping. but here we have to differentiate it with payroll. Payroll is also mistaken as an alternative to bookkeeping but the truth is that it is entirely different. The only similarity it has is its relation to the field of accounting. Let’s have a read.
In a summarized manner, bookkeeping deals with recording, storing and retrieving financial transactions for an individual, company, or nonprofit organization.
Whereas payroll is a company’s department that deals with calculating and distributing paychecks to employees on payday. Payroll refers to functions and tasks linked with the employee’s payments. Of course, it is the part of the finance department and accounting but covers an entirely different domain of the business.
Bookkeeping vs Payroll
We already cover the tasks, functions, and responsibilities of bookkeeping in our section “ bookkeeping vs accounting”. When it comes to payroll, it includes
- To calculate and distribute paychecks to workers and employees on payday
- To maintain the financial records of employees such as salaries, wages. bonuses, withheld taxes, deductions, etc.
Bookkeeping vs Payroll… Manual or Automated?
Just like bookkeeping the tasks of payroll can be performed manually but unlike bookkeeping, it is more difficult to perform manual payroll. obviously, it sucks a lot of time and hard work. Moreover, manually operating payrolls increase the risk of calculation errors that ultimately disturb the accounting audits at the end of the year.
The two most familiar approaches rather than operating payroll manually are
- Run a payroll accounting
- Use a payroll software
- Outsourcing payroll accounting
Outsourcing payroll to a payroll accounting is a smart approach that frees up your time by hiring an accountant who performs the entire payroll process for you
Bookkeeping, payroll, and accounting are the three main subdomains of the finance department of any organization or corporation. These three categories are so important and fundamental that no business either small or large can be run without them. The task and functions of bookkeeping, payroll, and accounting differ from each other and demand different skill sets for each of them. Acknowledging yourself with their difference helps you to choose the right person for the right domain with the right skills and capabilities.