The difference between bookkeeping and accounting may be likened to the difference between a nurse and a doctor. Both of them work towards the same objectives, but though their functions sometimes overlap, each of them have different areas of responsibility.
Very simply, it is the job of bookkeeping to record a business’ financial information, and the job of accounting to analyse and make sense of it. A bookkeeper is responsible for the recording part of the accounting process, while the whole accounting process is the responsibility of an accountant.
Now let’s take a closer look at what bookkeeping and accounting are, and what both processes do for SME’s in Singapore.
Recording + Filing = Bookkeeping
Bookkeeping is an administrative task focused on recording a business’ transactions. These transactions need to be recorded and compiled in an orderly and consistent manner.
A bookkeeper is also responsible for creating invoices, preparing the payroll, reconciling credit cards, and posting debits and credits. He also has to balance the business’ historical accounts, subsidiaries and the ledgers where the sales and expenses are recorded along with other supporting documents.
Bookkeepers are also responsible for paying suppliers, updating inventories, filing customers’ cash receipts, and handling petty cash.
Becoming a bookkeeper involves taking accounting courses to learn the fundamentals of accounting.
Analysing + Reporting = Accounting
Accounting takes the information gathered by bookkeeping to gain insights into how well the business is doing, to determine what steps the business needs to take going forward in order to maintain or increase profitability.
Accountants are the ones in charge of accruing or deferring expenses and revenue. They also analyse the business’ operating expenses, file taxes, and prepare reports and financial statements. These reports help business owners understand how the financial decisions they make affect their bottom line.
Accountants also take care of drawing up a chart of accounts, making loan proposals and planning the business’ budget. They set the standards and parameters for the business’ financial system which includes how records should be maintained, filed and destroyed when necessary.
Becoming an accountant involves earning a bachelor’s degree and / or passing a board exam to become a Certified Public Accountant or Chartered Accountant of Singapore (CA (Singapore)). An accountant’s career path might also lead to financial controller and comptroller positions within a company.
Accounting + Bookkeeping = Business Growth
Accounting and bookkeeping tasks began to overlap when those tasks began to go digital. Many bookkeeping programs, for instance, are able to generate financial reports, while some accountants also record the financial transactions of the companies they work for.
It’s interesting to note that because of this overlap, some industry observers think that bookkeeping per se will soon become a thing of the past, as most bookkeeping tasks have already been automated.
However, accounting and bookkeeping may also be seen as having a symbiotic relationship. The bookkeeper depends on the accountant to set up the general ledger or to determine which financial data needs to be recorded. The accountant, in turn, depends on the bookkeeper to provide the data for analysis.
Because of this relationship, many large businesses or companies have both bookkeepers and accountants on their staff.
Bookkeeping vs Accounting for SME’s
Smaller businesses, however, might not be able to engage a full-time accountant on a permanent basis, so they usually hire a bookkeeper and consult an accountant on an ad hoc basis such as during tax filing season. Medium-sized or larger businesses might have one full-time accountant overseeing several bookkeepers.
Bookkeepers in local SME’s, in particular, must be well up in Singapore’s tax laws and the provisions of the Singapore Financial Reporting Standards (SFRS). These provisions affect accounting and tax statements as well as inventory and real estate valuation, among others.
Any and all transactions must be recorded in accordance with the SFRS to avoid mismatches between recorded and actual expenses later on. Because tax statements are involved, bookkeepers also need to know the requirements of the Inland Revenue Authority of Singapore (IRAS).
Although preparing financial reports are the domain of the accountant, bookkeepers must likewise be familiar with Singapore’s auditing procedures.
While smaller businesses may be able to bypass the auditing requirements of large companies, their bookkeepers still need to make sure that recorded transactions match the business’ bank statements.
And because many businesses are making the switch to cloud accounting, bookkeepers must learn how to use digital platforms as they will also have to check whether the sales invoices match what has been digitally recorded.
Outsourcing Bookkeeping and Accounting Services
While there is a tendency for the owners of smaller businesses to do everything themselves, more of these business owners have come to appreciate the value of outsourcing their bookkeeping and accounting. Digital solutions have made outsourcing a practical and cost-effective alternative to in-house accounting staff.
By entrusting their books and accounts to an accounting services firm, business owners free up their time to focus on the other aspects of running their business. They also have peace of mind knowing that their financial records are done properly using the latest technology, and comply with SFRS and IRAS regulations.
Outsourcing also helps SME’s that might have just one or two bookkeepers and no full-time accountant by providing extra sets of eyes to review and ensure the accuracy of financial records.
Larger SME’s also choose to outsource some or all of their accounting requirements such as billing, payroll, claims and benefits processing and accounts payable, not only because of the convenience but for the savings involved.
While every business has its unique needs, outsourcing all bookkeeping and accounting tasks is generally recommended for businesses with a staff of about 10 or less. If an SME has more than 10 but less than 75 employees, they might opt to have full-time bookkeepers and outsource their accounting.
Made up of entrepreneurs as well as bookkeeping and accounting experts, U Ventures understands what business owners need and are ready to share their expertise with you.