What Are the Differences between Bookkeeping and Accounting?
Bookkeeping vs Accounting
Many people think that bookkeeping is the same as accounting. It’s not! There are some similarities, but there are many, many differences.
Bookkeepers track sales and expenses, while accountants analyze these records to create reports that summarize financial data.
Accounting is more than bookkeeping and reporting. It also includes payroll, insurance, legal, marketing, and other necessary accounting duties. Bookkeepers provide an important function that is vital for the business’s financial success and health. When we provide accounting services, we are creating an organized financial record for our clients.
There are significant differences between the objectives and purposes of both activities, although they both follow each other. In this post, we will learn about both concepts and figure out what makes them different from each other.
Bookkeeping is an activity related to recording the financial data relating to business operations in a significant and orderly manner. It covers the procedural aspect of the record-keeping function. Financial statements are the end product of the bookkeeping and record-keeping function.
A bookkeeper is responsible for keeping all business records or its segments, like customers’ accounts, suppliers’ accounts etc. A substantial nature of the bookkeeper’s work is clerical. Accounting is based on a careful and efficient bookkeeping system.
The basic goal of accounting is to demonstrate the precise location of each line item of revenue and cost. For instance, an owner may make purchases both in cash and on credit. When he purchases on credit, he will want to know who is owed money and how much from time to time. If adequate records are not kept, it will be challenging to obtain precise details about each transaction.
At the end of the accounting period, the proprietor wants to know the profit earned or loss suffered in the business activity. For this purpose, a lot of information is needed, which can be obtained from the proper record-keeping system. Hence, bookkeeping is an indispensable part of any business activity.
How is accounting different from bookkeeping?
Accounting is a broader term than bookkeeping. Accounting needs a greater understanding of records obtained from bookkeeping and the ability to analyse and interpret the information supplied by book-bookkeeping.
BookkBookkeepinghe recording phase, whereas accounting is concerned with the summarising phase of the accounting system. We can say that accounting follows bookkeeping.
Now we shall elaborate on some crucial differences between accounting and bookkeeping:
|1.||It is a process concerned with the recording of transactions.||It is a process concerned with the summarising of recorded transactions.|
|2.||It provides the base for accounting.||It is considered the language of business.|
|3.||It is not part of the financial statement.||Financial statements are prepared in the process of accounting based on bookkeeping.|
|4.||It does not help the management in decision making.||Management makes decisions based on accounting records.|
|5.||There is no sun field of accounting.||There are a lot of sub-fields of financial accounting like financial accounting, corporate accounting, cost and management accounting, etc.|
|6.||The financial position of a business cannot be assessed through bookkeeping.||The financial position of a business organisation is ascertained based on an accounting record.|
|7.||It does not require a high level of skill and knowledge to manage bookkeeping.||Good knowledge and experience are required to prepare and manage the accounting record.|
Hence, we can see that accounting and bookkeeping are different terms. Yet, there is an inter-relationship between accounting and bookkeeping.
Bookkeeping is the foundation of accounting. Accounting information is more beneficial for stakeholders who are interested in the financial records of a company. These users cannot make any valuable decisions merely based on bookkeeping records.
Accounting and bookkeeping, while similar, are distinct jobs. Both jobs require an accountant to keep track of accounts and record transactions, but they have different objectives. An accountant’s objective is to produce financial statements that represent the business entity’s financial position. As a result of recording data in the financial statements, the accountant develops a record of a business’s transactions and accounts.
Bookkeepers perform a different function. Rather than producing financial statements, a bookkeeper tracks business records to develop the records that help management maintain the books of the business. Bookkeepers use the records for internal reporting, inventory control, customer credit and collection and payroll processing.
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