Bookkeeping and accounting are often treated as the same activity or function – especially by those unfamiliar with the processes involved.
This is understandable. Both functions deal with financial information, accounts, balances and books. There will also be a degree of task overlap.
However, there are a number of important differences between the two. Businesses must understand these differences if they want to make sure that their internal accounting and finance departments are performing.
In this article, we explain what the key differences are and why they matter.
Let’s start by clarifying the terms: accounting and bookkeeping.
What is bookkeeping?
Bookkeeping is the basis of the accounting function and involves the identification, classification and recording of any financial transactions conducted by a business. It also involves the ongoing maintenance and updating of a company’s accounting books and ensuring that they are in order at all times.
What is accounting?
Accounting requires a greater level of examination, analysis and interpretation of the financial information that has been recorded in the books. The accounting function will also be responsible for ensuring compliance with relevant laws, tax legislation, other accounting-related compliance activities and will also assist in the preparation of company financial statements, budgets and forecasts.
There are times, however, where the accounting and bookkeeping functions may overlap. For example, accountants will sometimes enter transactions into the ledgers. There will also be times where bookkeepers will assist with the preparation of financial statements, P&Ls and trial balances.
Also, a business might not have the resources, finances or desire to build an internal team or engage an outsourced team of both accountants and bookkeepers. As such, one person might perform a dual role. There are however certain limitations on this – see below!
Why does it matter if there’s a difference?
It matters a lot for a business!
By understanding each of these two functions, a business can ensure that all finance-related information is being generated and used correctly to add value, create opportunities and/or remove risks for a business.
Here are just some examples of why it is important to understand the differences between bookkeeping and accounting services:
- Recruitment. It is important for a business to know the difference in the tasks involved in each function. The business can then hire the correct person to perform these tasks. By knowing the responsibilities required for each role, you can select the professional whose background best matches the requirements of the job.
- Skillset. Hiring a bookkeeper to perform the accountant role will usually not work. They are unlikely to have the skillset or qualifications to perform the role which may result in inaccurate reporting and/or compliance issues. Likewise, hiring a certified accountant to do only the bookkeeping means the business is not using the full range of its resources. Skillsets and qualifications will not be used to the best of their abilities.
- Process. What’s the point of having all of your transactions entered into the accounting books if the information cannot be interpreted? Also, how can an accountant perform an analysis if the information hasn’t been entered into the ledgers in the first place? Both functions are integral to the overall accounting and finance process.
- Budget. The salary of an accountant will generally be higher than that of a bookkeeper – where they both have the same level of experience. When a company is preparing its budgets or financial forecasts, it must be aware that, in the long run, an accountant is likely to cost a business more than a bookkeeper.
What exactly is involved?
Bookkeeping deals more with the processing, entry and recording of business transactions. Below is a general scope of what is usually required within the bookkeeping function of a business:
- Recording of transactions
- Preparation of sales invoices
- Issuance of official receipts
- Maintaining subsidiary ledgers
- Storing of certain documents. Check out our recent article on the preservation rules for accounting records in the Philippines
- Computing payroll as well as applying mandatory payroll deductions and contributions
The accounting function operates at a slightly higher level. A primary objective of an accountant should be to help managers and owners understand their financial information and improve commercial decision-making. Accountants will achieve this generally through outputs such as financial statements, forecasts, budgets and other forms of financial reporting.
The scope of the accounting function will generally include:
- Preparation of more advanced adjusting entries (E.g. accruals of income for particular industries)
- Preparation of more complex financial statements
- Analysis of income and costs
- Prepare more complicated tax returns
- Preparation of financial reports, budgets and forecasts that help management make informed decisions
- Identification of KPIs to increase cost efficiencies and reduce inefficiencies
Job qualifications are also different
Both bookkeepers and accountants must have, at a minimum, a base level of knowledge of the accounting process. After this, however, the requirements of the position start to differ.
Bookkeepers do not require the same level of certification/qualification as an accountant. Generally, a bookkeeper will be able to perform the bookkeeping role after having graduated from general business courses such as:
- BS Accountancy or equivalent
- Other accountancy-related courses like BS Management Accounting, BS Accounting Technology or BS Accounting Information Systems
For accountants, however, they must obtain professional qualifications to enable them to practice as an “accountant”.
A qualified accountant in the Philippines will have the title of a Certified Public Accountant or CPA. This qualification can only be obtained after graduating from a certified accountancy course and then passing a rigorous set of examinations set by the Professional Regulatory Commission.
Accountants will have to study and understand a large number of laws, standards and regulations in order to a) qualify as a CPA and b) perform their accounting role effectively. For example:
- Philippine Financial Reporting Standards
- Philippine Interpretation – IFRIC
- Philippine Accounting Standards
- Revenue Memorandum Orders
- Revenue Regulations
- Bangko Sentral ng Pilipinas (BSP) Memorandums and Circulars (for those working in financial institutions)
- Relevant Securities and Exchange Commission Memos and Circulars
- Relevant business and industry specific laws and regulations. For example, accountants of restaurant businesses must now account for the fact that the Service Charge Law has now been signed.
Cloud Accounting Solutions
Businesses should also be aware that the accounting landscape has very much changed with the introduction of cloud technology and online accounting solutions.
With online accounting solutions such as Xero or Quickbooks Online, the divide between the roles of bookkeeping and accounting functions has grown much smaller.
Now, from the information inputted by a bookkeeper, a cloud accounting solution can generate financial reports and statements and even provide data reports that help management to understand areas for improvement or optimization.
The introduction of such technology and solutions has created a much more efficient method for companies to perform their bookkeeping, accounting and finance functions.
The increasing use of outsourced accounting and bookkeeping services in the Philippines has also changed the landscape considerably.
Outsourced bookkeeping and accounting services in the Philippines
The CloudCfo team is made up of just the right mix of bookkeepers and CPAs to service your business.
As a client of CloudCfo, you are allocated a designated team for your business. This team will be led by an experienced CPA and will include CPAs and expert bookkeepers within the team. This enables CloudCfo to provide the highest level of service at really competitive rates.
CloudCfo can perform the entire accounting process for your business – end to end! From the input of financial data and transactions to compliance to analysis to financial and management reporting. We are a team of experts with extensive experience across a wide range of areas and businesses.
If your company already has a bookkeeper or CPA, our team can work as an extension of and adviser to that individual and provide value-added assistance, guidance and strategic advice at the right time.
Visit us at cloudcfo.ph or contact us at firstname.lastname@example.org for more information about our services.