Bookkeeping vs Accounting: What Are the Key Differences?

An accountant’s early workdays might be filled with data entry and tracking. They take this skill set with them to gain a firm understanding of how financial monitoring works. Accountants know this, which is why they jump over numerous hurdles to get to where they are today. Your financial data really must go through eight layers and (at least) two people.

• Of course, a background in accounting practices will help you ride out a learning curve as a new bookkeeper.
• Other disadvantages we already mentioned above such as requiring computer equipment, resources, and skilled operators.
• For a long-term career, accounting offers much more upward mobility and income potential.
• A third aspect of accounting involves income tax reporting, and must be done in compliance with government regulations.
• Payroll accounting provides you with a record of tax obligations and legal obligations.
• Calculations will also depend on your state and sometimes your city or county.

With an accurate record of all transactions, you can easily discover any discrepancies between financial statements and what’s been recorded. This will allow you to quickly catch any errors that could become an issue down the road. Because bookkeeping involves the creation of financial reports, you will have access to information that provides accurate indicators of measurable success. By having access to this data, businesses of all sizes and ages can make strategic plans and develop realistic objectives. Without bookkeeping, accountants would be unable to successfully provide business owners with the insight they need to make informed financial decisions. Bookkeeping is just one facet of doing business and keeping accurate financial records.

What is the difference between bookkeeping and accounting?

The best bookkeepers and accountants work with you, giving you visibility into your finances and helping you get a better understanding of your company. It’s important to note that some EAs only provide tax services and don’t handle other bookkeeping and accounting work. Then employees receive their paychecks for that pay period on January 17. Until you pay employees, those wages are a liability because it’s money you owe.

Reporting and paying them accurately depends on employee data (through form W-4) and how much they make (what tax bracket they fall into). The process includes tracking time, accounting for bonus pay, and making on-time distributions. Earlier, you might recall us stating that all bookkeepers are accountants, but not all are bookkeepers. Bookkeeping is often the first step towards taking an accounting role.

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Accountants, on the other hand, use the information provided by bookkeepers to summarize a business’s financial position and render financial advice to the business owner. Many accountants also prepare tax returns, independent audits and certified financial statements for lenders, potential buyers and investors. Sometimes bookkeepers and accountants do the same work but the difference is marked in their skillsets. Basically, any process for recording financial transactions is a bookkeeping process, including purchasing, sales, receipts and payments. It is the day-to-day record-keeping aspect of financial accounting that involves the preparing of documents for all transactions and business events. As such, although it is bookkeeping, it is also a part of the accounting process.

From Social Security and Medicare to state and federal unemployment taxes, the list goes on and on. As a business owner, it’s your job to pay your share of the taxes and manage tax withholdings from employee paychecks. And until all those taxes are deposited to their bookkeeping and payroll services final destinations, they’re payroll liabilities. Payroll liabilities, or payables , are amounts you currently owe, pertaining to your business’s payroll. If you’re using a payroll journal, you enter payables as credits because you are increasing the amount you owe.

Bookkeeping functions

It’s the first entry you record to show a transaction has occurred. These entries include your employees’ gross earnings and withholdings. In these initial entries, you also record any employment taxes you owe. After subtracting some of the most common payroll taxes, the employee’s wages payable or “take-home” pay is $925. One method for recording payroll is to create journal entries to account for each piece of payroll, including employee paychecks and employer taxes.

Ask for testimonials from people who have utilized your services in the past and spread the word about your offerings through a website or social media. Our blog is filled with articles and resources related to accounting, small business
finances, payroll, bookkeeping, and much much more. Without accurate financial reports, management would never know if the company if financially healthy or not. A large aspect of accounting is presenting the information in the form of general-purpose financial statements, such as a balance sheet or income statement.

While you may have heard other people use these terms interchangeably, bookkeeping and accounting are actually two separate (but closely related) business activities. Both bookkeeping and accounting are essential for maintaining the financial health of your company. You may handle payroll functions as a bookkeeper, keep tax withholding records, and issue paychecks or send information to a contracted payroll service.