For those of us who have bad memories of maths classes in high school, we might think that bookkeepers and accountants are part of that rare breed of people who really like numbers, and who are a necessary evil for the rest of us at tax time or to keep our companies, businesses, and organisations out of trouble. A common question we are often asked is what is the difference between a bookkeeper and an accountant and Canny Group have both under the one roof!
If pressed to explain what the difference is between bookkeepers and accountants, many of us might have a vague idea but would probably struggle to accurately identify a clear role description for each profession. While both have an important role to play, knowing the specific strengths and expertise of each can help to ensure that tasks can be allocated based on meeting compliance requirements without overspending – both for businesses and individuals.
Put simply, it is a bit like the difference between a GP and a medical specialist!
What is Bookkeeping?
The general definition of bookkeeping is keeping a regular record of all financial transactions – either for a business or for personal expenditure. Of course, all companies and businesses expend money – even if they are a not-for-profit organisation – so bookkeeping is a key part of any business.
Some of the general business tasks that bookkeepers regularly assist with include:
- Processing financial transaction documents such as invoices, payments and receipts, and statements
- Maintaining an accurate and current general ledger
- Payroll administration
- Collating information for monthly and annual financial reports
- Managing accounts payable and receivable
- Preparing and lodging business activity statements (BAS)
- Advising on bookkeeping and payroll systems and software.
What is Accounting?
Accounting can be defined as recording, analysing, and reporting an organisation’s financial transactions. This is not just to meet legislative requirements (such as paying tax) but also to plan future expenditure to maximise and increase profit. Accountants provide high level advice on:
- Business start-up and establishment
- Financial due diligence
- Taxation and auditing
- Corporate reporting and compliance
- Superannuation funds and payment
- Financial management and investment.
While of obvious value to companies, businesses and organisations, accountants are also used by individuals with large or complex investments and share portfolios, for managing family trusts, and by self-funded retirees.
There are also different areas of specialisation in accounting, including financial accounting, management accounting, insurance and risk, taxation, auditing, and insolvency. A specific, high level specialisation is known as forensic accounting, which uses auditing and investigative skills and methods to determine instances of fraud and suspicious financial activity. Forensic accountants’ reports are used in criminal trials as evidence and to assist in recovering financial losses for businesses that have been targeted by scammers.
Forensic accountants are also employed to do financial due diligence in the event of purchasing a business or investing in a business. In this context they focus on key issues such as:
- Inaccurate or unrealistic financial projections
- Understated liabilities and expenses
- Overstated revenue
- Overvalued assets
- Governance/managerial deficiencies.
Accountants may also provide advice on the best accounting software and systems, and this is an area that can often change rapidly – such as the current focus on cloud-based accounting. Cloud accounting makes business financial records safer and more secure and reduces the chance of errors, leaving accountants more time to spend advising clients on business growth and profit maximisation.
Fundamental differences or just a higher pay grade?
While there may be some overlap between the services that bookkeepers offer and those of accountants, for the purposes of business it is advisable to use the services of both in a complementary way. For example, while you may want the higher analytical skills of accountants to prepare and lodge your annual financial records in compliance with company legislation requirements, you probably do not want to pay them to do any of the collating tasks or basic checking tasks that would form part of a bookkeeper’s duties.
While a good bookkeeper can keep you up to date with profit and loss, balance sheet and general ledger details, an accountant can give in depth advice on strategies to increase profits, minimise taxation and invest in the future. The level of scrutiny and analysis an accountant applies to all areas of an organisation’s finances means that they are able to make accurate financial projections.
Similarly, while a bookkeeper may be valuable in saving time by comprehensively collating and checking all documents required for an annual corporate tax return, an accountant’s deeper knowledge of taxation legislation will ensure that their preparation of the return will be compliant and will maximise all chances of the best financial outcome for the business.
Compliance is becoming more and more complex in many industries, and since the Global Financial Crisis large financial organisations – including banks – have come under scrutiny. Any business with a reasonable financial turnover is increasingly subject to regulatory and statutory guidelines and keeping up with them is essential. Accountants who specialise in this area can guide business managers and directors through the stormy waters of audits and financial reporting. As well as ensuring compliance, annual auditing and review of financial statements will enable an accountant to provide important information on future risks and opportunities, and to remain viable in a competitive market.
Risk management, once a favourite of government departments, is now becoming more of a focus in all areas of business. The current COVID-19 crisis has taken a huge toll on businesses worldwide, and those with a proactive and future-proof approach are more likely to thrive. This is something that a good accountant – who follows the markets and international trends – will be able to advise on.
So where does the buck stop?
In conclusion, both accountants and bookkeepers provide valuable – and often complementary – services, and the future-focused proactive business, company or organisation will use the services of both. There is a fundamental difference between the two professions and recognising this will assist businesses in the most economic and efficient use of their areas of expertise.
Viewing your bookkeeper and accountant as a team, dedicated to maximising efficiency and saving you money, is the best way to ensure that all your personal, corporate, compliance and financial needs are given expert treatment by dedicated professionals