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(03) 9497 5885 Bookkeeping and accounting are two terms which are often used interchangeably. However, there are a number of important distinctions between the two roles which shape the different kinds of services that they are able to offer. In this blog, we’ll take a look at how the two roles differ and discuss whether your business needs both.
What are the key differences between bookkeeping and accounting?
Role
A bookkeeper’s job is to measure, identify and record financial transactions. An accountant’s job is to summarise, interpret and communicate those financial transactions.
Objective
The ultimate goal of bookkeeping is to ensure all financial transactions are systematically recorded in the proper way. On the other hand, the goal of accounting is to gain an understanding of an organisation or individual’s overall financial situation and then communicate this information.
Functions
Tasks typically associated with bookkeeping include payroll, invoicing, calculating GST, receipts and bills as well as recording business transactions. Functions typically fulfilled by an accountant include financial statements and reports, budgets, tax returns, and business performance analysis.
Product
Whilst bookkeepers produce data, accountants analyse and interpret data to produce insights which can then be used to make business decisions.
Bookkeeping doesn’t require any specific kinds of skills as there is no analysis involved in the processing, only the recording of data. Accounting on the other hand is a highly specialised profession which demands complex analytical skills.
Why would I hire a bookkeeper?
A bookkeeper ensures all the numbers in your business add up correctly. Some of the other key benefits to be gained from working with a bookkeeper include:
- They have the experience to ensure common issues like data entry errors, missing entries, double entries and mixing up types of expenses are avoided.
- Bookkeepers ensure all payments and invoices are made on schedule, so business owners don’t fall behind on paying and accounts receivable.
- Working with a bookkeeper enables business owners to focus on their core competencies and growing their organisation rather than dealing with day-to-day number crunching.
Why would I hire an accountant?
If you’re a business owner, working with an accountant is a virtually essential part of your taxation compliance requirements; however, here are a number of other benefits that working with this type of professional can provide including:
- Creating business plans and ensuring they contain the financial details necessary to raise funds
- Helping businesses become informed of their financial options and make strategic financial decisions
- Ensuring you pay the right amount of tax and identify possible tax breaks or deductions for your business
- Advising you of potential investment opportunities suited to your business and help you protect your existing investment
- Third party accountants will also use their own high-quality accounting software to manage your financial matters, saving your business the cost of investing in such software
- Helping you account for, and manage all your business assets including profits, losses, credits and debits
- Helping you identify business problems like incorrect pricing
- Preparing financial statements that give you a clear idea of your revenue, expenses, assets and liabilities
Do I need both?
Having your finances properly managed by professionals can play a major role in the success or failure of your business. A recent study by a U.S. Bank found that poor financial management is a factor in the failure of 82% of small businesses. Achieving good financial management requires the skills of both a bookkeeper and an accountant- the bookkeeper plays an important role in managing your company’s day-to-day financial transactions, which are then used by the accountant to examine the larger financial picture. Poor day to day management of finances will results in you paying substantially more for accounting services as the accountant will need to put your financial data together and ensure it is correct before they can undertake any analysis. Similarly, without the insight and strategic guidance that an accountant provides, your business is unlikely to grow and thrive.
Does bookkeeping and accounting software make these roles obsolete?
Whilst bookkeeping and accounting software can help make tasks such as balancing ledgers, data entry, reconciling statements and payroll processing easier, software is only ever as good as it’s user and that means that there is still margin for error. Working with accountants and bookkeepers ensures that your finances are professionally managed, and your organisation further benefits from professional insights which can help your business grow.
Silverdale offers both small business accounting and small business bookkeeping services to Melbourne businesses. To learn more about our capabilities, please don’t hesitate to get in touch with us by calling (03) 9497 5885.