To fully understand how responsibilities differ between an accountant and a bookkeeper, it’s important to know about the system of tasks—or the accounting cycle—every business must follow to generate accurate financial statements. A bookkeeper can manage most of these tasks, but an accountant takes them further by using those financial statements to offer valuable financial advice.
The primary steps of the accounting cycle are as follows:
1. Create a chart of accounts
A chart of accounts is a list of all of the accounts within your company that are recorded in the general ledger. There are four main sections to the chart of accounts, which primarily consists of:
- Assets accounts: Anything you own that has value, like buildings, land, inventory, and vehicles.
- Liability accounts: Payrolls taxes, bank loans, credit card balances, personal loans, and deferred tax liabilities.
- Income accounts: Rental income, contra income, dividend income, and sales income.
- Expense accounts: Advertising expenses, interest expenses, depreciation expenses, salaries or wages, and cost of sales.
A bookkeeper will complete these steps and use the chart of accounts to post every journal entry and financial transaction within the general ledger.
2. Maintain journal entries and the general ledger
The bookkeeper posts accounting transactions in the general ledger using documents such as receipts, invoices, and other records of business activity. The general ledger is a sheet that houses all accounting data and financial records within a business.
Bookkeepers also post transactions using journal entries that track all account activities.
A bookkeeper usually performs these steps, however, an accountant may step in to complete these tasks, or oversee them as they’re completed by the bookkeeper.
3. Generate the trial balance and adjust entries
Once the bookkeeper posts all transactions, the accountant generates a trial balance that lists all business accounts and balances. A trial balance may require adjustments and corrections using adjusting entries, which are necessary to comply with the accrual basis method of accounting required by the generally accepted accounting principles (GAAP). Accountants will then use the updated trial balance to produce financial statements.
These steps require a more in-depth understanding of finances, so an accountant will typically perform them.
Note: Every step in the accounting cycle is performed at the end of each month and year. Without an accountant or bookkeeper, it’s up to the business owner to accomplish them on their own.
