Two questions I’m often asked are: “What’s the difference between a bookkeeper and an accountant?” followed straight after with: “And what’s best for my business?” But the answers to these questions are not as straight forward as you might think. A bookkeeper and an accountant both perform key roles that are critical to the management and financial well being of a business, no matter the size. They both have common goals, and their functions may also overlap, but in order to decide which professional service is needed it’s important to understand the scope of each job.
A bookkeeper is someone who does the administrative and operational tasks that relate to managing the finances of a business. Bookkeeping refers to the process of accumulating, organising, storing, and accessing financial information. This is then needed to facilitate the day-to-day operations of the business and prepare financial statements, tax returns, and internal reports to managers. Bookkeeping includes producing invoices and receipts for clients, managing and processing all payments and expenses, performing bank reconciliations, processing payroll and extracting reports from the accounting software. Bookkeepers generally don’t analyse the data and make assertions about the manner in which business is conducted, but rather allow this to be done by an accountant.
Accounting, on the other hand, is a much broader term than bookkeeping. Accountants prepare reports relating to performance measures that business managers, investors and others concerned with the financial health of a business require. These reports are generated from the information accumulated by the bookkeeping process and include: financial statements such as profit and loss, balance sheet, cash flow forecasts and budgets. They will analyse these financial reports to identify where a company can reduce costs or increase sales. Accounting also includes helping set up the structure of a business, providing high-level tax and financial advice, investment suggestions, the lodging of quarterly BAS, PAYG tax and company income tax returns, ensuring compliance and claiming all legitimate deductions.
Differences in the role of the bookkeeper and accountant can be an issue for some businesses when they need financial information. Basically, the bookkeeper manages the ongoing financial transactions and the accountant manages the tax and financial advice. Bookkeepers can often perform the tasks that a traditional accountant does such as business reporting but at a fraction of the cost. As business reports are generated by accounting software packages and are based around quality data entry (which is what a bookkeeper does) they can easily provide businesses with relevant reports. However, a bookkeeper may not have as much business experience as an accountant when it comes to interpreting them.
An accountant can be a bookkeeper, but not many bookkeepers are accountants. And the number of business owners who can be bookkeepers is even smaller. Even with the advances in cloud based accounting software of recent years, the person entering the data should know the difference between a capital asset and an expense, cash and accrual accounting and be across the various tax codes. The truth of the matter is that most businesses will need both a bookkeeper and accountant but usually not full-time. Outsourcing bookkeeping is a wise decision for a business owner to make because it will save time and money and free them up for hours each month to work on higher value activities. Please get in touch to discuss how we can help you better manage your finances.