The difference between bookkeeping and accounting

When thinking of a career, some people decide against becoming an accountant because they “don’t want to be a beancounter” or because they believe that accounting is boring.  These stereotypes about accounting are misleading. Accounting involves solving mysteries, forecasting the future, and ensuring high levels of integrity. Accountants must logically put together the pieces of the financial puzzle. 

An accountant ensures the financial statements materially represent a company’s financial position. In other words, owners and investors don’t get ripped off because the accountant is at work! You may ask, if that’s true, then why do people say that accountants keep books?

That question actually leads to the difference between a bookkeeper and an accountant. A bookkeeper, you see, provides the foundation for an accountant’s work. Bookkeeping is a means of tracking financial data in a standardized manner. Thus, a bookkeeper records financial transactions that provide the accountant with basic information accountants need to begin their work of putting the pieces together in a meaningful way.

Without the bookkeeper, accountants wouldn’t have what they need to make decisions.
People who enjoy a work routine that does not involve a lot of decision-making make great bookkeepers. Bookkeepers record cash coming into or going out of the business. They record this information in spreadsheets, using standardized account names provided to them by the accountant. These account names explain why and where the money came from or was used. Bookkeepers also record what is owed to a business but not yet received and what the company owes but has not yet paid. 

So just what is an accountant, then?
An accountant picks up where the bookkeeper leaves off. The accountant uses the recorded information provided by the bookkeeper to create financial reports. The accountant must review and adjust this information based upon guidelines known as Generally Accepted Accounting Principles (GAAP). Because a business is dynamic, accountants have to make adjustments at the end of what is known as an accounting period. 

These adjustments are not only based on timing, but also on the accountant’s ability to see the big picture of the company and the financial world in general. For example, the accountant’s work was much easier when everything was paid in cash. But the world has become much more complicated, and payment can occur in stocks or Bitcoins whose values are constantly changing. The accountant decides how to value these different types of financial instruments.    

In making that decision, the accountant must be able to defend their decisions. The accountant bases that defense on knowledge of GAAP, which is used for reporting financial information in the U.S.  Many businesses, however, are international in nature and different countries have different principles and financial laws that the accountant must be familiar with. Imagine the challenge that an accountant faces in today’s complex, international business world.

The accountant, unlike the bookkeeper, is also expected to make forecasts.
These forecasts can involve anything from creating and tracking budgets based upon knowledge of the business to developing business growth projections. The accountant must look beyond recording the numbers and make decisions that could potentially help the company expand or go bankrupt. 

But what about taxes?
Both a bookkeeper and an accountant can do tax work. However, only an accountant can represent a client when there is an IRS audit. The reason for this difference is that the tax accountant has more knowledge about the tax codes, and as such, the knowledge to make decisions regarding how something is accounted for in preparing a tax return. Also, just because a person is an accountant, they can decide not to do taxes.

So you see, the accountant has much more control than a bookkeeper. In fact, the accountant doesn’t even need higher math skills. Accountants have the exciting adventure of making decisions that make or break a company.