What is Accounting and How is it Different from Bookkeeping?
The Merriam-Webster dictionary defines accounting as the system of recording and summarizing business and financial transactions and analysing, verifying, and reporting the results.
What this really means is accountants are responsible for selecting the most relevant and reliable financial information about a business entity, preparing reports based on that information and then communicating it to all relevant stakeholders in an organisation such as shareholders and managers.
Understandably, this is extremely important for any business; in fact, accounting is often called “the language of business”.
Accounting vs Bookkeeping
Accounting and bookkeeping are closely related fields. In many organisations, bookkeepers and accountants work together but there are some key differences between the two functions.
Accounting focuses on the ‘big picture’ of a business, keeping track of all data and transactions, then generating reports based on that information – creating an accurate financial ‘picture’ of the business for stakeholders to use to make decisions.
Accounting also encompasses areas such as payroll and taxes, both particularly important as there may be stiff fines and poor publicity if even small mistakes are made in their calculation and payment. Accountants must also prepare public reports according to strict Government standards, created and maintained by the Australian Accounting Standards Board.
Bookkeeping, on the other hand, focuses on the minutiae of transactions; systematically recording the amounts, dates and sources of every revenue and expense generated by the business day to day. Bookkeepers collect and create the basic financial data of a business and bring books to the ‘trial balance’ stage, where the sum of a business’ debits is compared to the sum of its credits. The trial balance can then be used by accountants to form the basis of many reports, such as the profit and loss statement and balance sheet.
Differences Between Accounting and Bookkeeping
In practice, there may not be such clear distinctions between the two areas. Accountants typically learn bookkeeping as part of their training and can consequently perform both functions as required.
In large businesses with multiple accountants and bookkeepers on staff, roles may be clearly defined. There will be a team of dedicated bookkeepers who will take care of recording, and a team of accountants who handle reporting. On the other hand, many smaller companies often have an accountant performing all recording and reporting roles in the organisation. Accountants typically have higher level training, such as a university degree. As a result, accountants typically earn more than bookkeepers.
Which Should I choose?
Bookkeepers and accountants are always in demand. It is possible to have a very rewarding and lucrative career in either field. In many cases, bookkeepers are able to register as a BAS agent and tax agent, which allows them to prepare certain reports for the Australian Tax Office on behalf of small business owners and individuals. This is typically known as ‘contract bookkeeping’. Many bookkeepers are able to run their own successful small business from a home or office as a contract bookkeeper. Bookkeepers and accountants can also form their own firms with multiple bookkeepers or accountants as partners.
The overlap between bookkeeping and accounting makes it easy to move between either field. Accountants typically receive training to work as a bookkeeper, and many accountants might start their careers with a more entry level bookkeeping role. Accountants can also register as BAS and tax agents provided they meet the training and experience conditions set by the ATO.
Bookkeepers don’t necessarily have to be qualified to start their career in the industry. Bookkeeping functions are often included in administration and reception duties. Business administration courses include some bookkeeping training, or quite often people learn bookkeeping on the job. Someone wanting to start a bookkeeping career without experience would be better served by studying a dedicated bookkeeping course like the Certificate IV in Bookkeeping. This qualification is also highly desired by experienced bookkeepers who need a formal accreditation in order to meet the registration conditions to become a registered BAS agent.
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