Both roles are critical to producing good quality financial information, but there are some important differences.
The difference between bookkeeping and accounting are not clear for many buyers of these services. This is complicated by the fact that the scope of services for bookkeeping solutions and accounting solutions can often overlap.
While their roles in the accounting cycle are different, they both share some common elements:
- They both work with financial data
- Both functions have the goal of improving the outcome for the companies they support
Bookkeeping tends to be transactional in nature and is historically based. However, the importance of good bookkeeping can not be underestimated because the outputs of bookkeeping are what management accountants and leadership teams use to make business decisions. Bookkeepers tend to focus on:
- Posting supplier invoices
- Invoicing clients
- Maintaining the general ledger
- Maintain a system to keep back up required to support the accounting records
- Preparing and filing sales tax returns
- Payroll and benefits administration (sometimes)
- Bank and credit card reconciliations
Accounting takes all of the data produced by the bookkeeper and uses it to inform and influence the business decisions. Accountants, and in particular management accountants, will focus on:
- The use of accrual accounting whereby they will use adjusting entries to match revenue with costs to provide the most accurate picture of monthly performance regardless of whether something was billed or received on a cash basis
- Financial planning and analysis
- Management Reporting
- Scenario planning to support decision making
- Advising the business owners
Small businesses tend to start off with a bookkeeping only solution but as they grow, and their risks and opportunities expand, they tend to require more planning and analysis than a bookkeeping only solution can provide. At that point, a solution which includes both bookkeeping, and planning and analysis, is generally required. Hiring for this on an in-house basis tends to be cost prohibitive. A solid bookkeeper usually costs between $40-$55,000 per year. An analyst can be up to $100,000/year. Organizations with less than $1M simply can’t afford this solution. This is when it makes sense to consider an outsourced model where you can buy the experience of a team, only on a fractional basis.
READY TO OUTSOURCE YOUR ACCOUNTING?
Finally helps high potential creative service firms leap from the basics of bookkeeping and into a seamless, partner-at-the-table accounting team that helps you see the bigger picture and provides you the tools and the counsel to turn it into a reality.