Bookkeeping vs Accounting - What’s the Difference?
“Same thing, right?”
In Malaysia and throughout the rest of the world, these two terms are commonly used interchangeably.
To the untrained eye, they might seem like one and the same. After all, both fields work with a business’s numbers. Here, we give you an overview of the distinctions and differences that set accounting and bookkeeping apart.
Bookkeeping involves just that - keeping the books. That means systematically keeping track of a business’s day-to-day financial transactions (the “books”). Everything from purchases to payments to sales.
Accounting on the other hand, focuses on the bigger picture. Qualified accountants expertly analyze and interpret financial information to gain a higher level view of the business’s finances. They make sense of all the numbers to deduce a business’s financial health and performance.
What do bookkeepers and accountants do?
The objective of bookkeeping is to accurately and systematically record each transaction of a business, usually in chronological order.
The duties of a bookkeeper largely varies according to the size and complexity of the company they’re with. While one bookkeeper might solely record the company’s transactions and store them in a general ledger account, others may take up more roles almost up to the scope of an accountant!
Generally, some of the duties a bookkeeper is responsible for include:
Prepare, receive and verify invoices
Post financial transactions into the system
Ensure payments are up to date
Reconcile statements to ensure they’re in line with each other
The objective of accounting is to analyze a business’s performance and financial position. Accountants can do this because they speak a different language than most of us do.
What may seem like mere numbers to most? Run it through an accountant and you’ll be able to find out where your business should spend, and where it should cut!
These are just a few of the main tasks involved in accounting:
Preparation of monthly management accounts
Preparation of year-end financial statements
Reviewing key financial ratios to determine performance and financial health of the business
Ensuring compliance of tax returns with relevant tax laws
Budgeting and planning
Perform internal audits.
Of course, there’s a lot more to accounting. These 14 things you probably didn’t know an accountant could do for example!
Try picturing bookkeeping vs accounting like this!
Accounting is the unseen language of business, which is why it makes up various different parts of a process. Bookkeepers play an integral part by laying the groundwork in the first step of the process, while accountants can handle the entire process from A-Z.
Hence - all accountants are bookkeepers, but not all bookkeepers are accountants!
Bookkeepers and accountants usually work hand-in-hand, and shoddy financial records on the bookkeeper’s end will spark a domino effect, eventually affecting the accountant’s work and along with it, the business too.
Think of it this way - a junior chef might prep the ingredients in a restaurant, while the executive chef uses the ingredients to devise the day’s menu based on the ingredients.
The same goes for bookkeeping vs accounting. The bookkeeper accurately records all the minutiae of the business’s financial transactions, which is then used by the accountant to make better business decisions.
Comparing the two
Who can manage bookkeeping and accounting?
When it comes to bookkeeping vs accounting, bookkeepers need to have a keen eye for detail. But it doesn’t necessarily call for any professional education nor qualifications. In fact, many bookkeepers are self taught!
Accountants on the other hand, are regulated by a professional regulatory body. In Malaysia, this is the Malaysian Institute of Accountants (MIA).
Without the knowledge and insight of an accountant adept in their field, businesses might not be able to make sufficiently informed decisions. It would not know how to file their tax returns (and file them accurately to prevent penalties!), whether to buy an asset, whether or not to merge with another company...the list goes on.
Perhaps you’ve heard of such nightmare cases - a small business naively hires a suspiciously affordable “accountant”, only to realize later that nothing was properly reconciled. Tax returns were underpaid, and now the business has to fork out the penalty for underpayment!
Making the choice for your business
The cost of hiring in-house bookkeepers and chartered accountants may be too great for the current capabilities of most small businesses.
This is why many choose to outsource their accounting and CFO needs to a professional third party like us at Mahzan Sulaiman!
We’ve been helping small businesses with their accounting needs and guiding them to their business goals since 2015. If you need help with your business’s accounting as well, let us know by filling in this questionnaire here!
Or read our guide here for some basic accounting knowledge if you’re planning to start a business in Malaysia!