Difference Between Bookkeeping and Accounting
For every business, bookkeeping, and accounting are two different aspects. Both of the aspects are used to maintain the financial records of the company. While making financial statements at the end of the year, every company is required to have a bookkeeping and accounting process. This helps in the smooth functioning of the company and also in evaluating the net worth of the company. Knowledge about basic economics is required by both accounting and bookkeeping. These both are confusing terms because they are used for a similar purpose but still there are lots of difference between bookkeeping and accounting.
Bookkeeping and accounting deal with the financial transactions related to a company. Usually, they are used as synonyms but both of them have different functions.
Although, both bookkeeping and accounting are inseparable processes. There is a very thin line of differences between them. In accounting, bookkeeping is one of the parts of its process. Therefore, accounting is wider than bookkeeping.
Bookkeeping is mainly to record the transactions to do work with more clarity. Whereas, accounting is related to summarizing the recorded transactions to get the net results. Accounting requires a high level of knowledge about the subject, analytical skills, expertise, conceptual understanding of accounting, and many more related to accounts.
Odint Consulting helps you understand the conceptual difference between bookkeeping and accounting. Let us now proceed by having an in-depth glimpse of the topics. We will have a look at both the terms separately and also differentiate between them to be more and more familiar with the concepts.
Bookkeeping
Bookkeeping is done by a bookkeeper who is appointed by the company. It is the process of completely recording monetary transactions systematically of an organization. It helps in the formation of the base for accounting. It is the activity of recording every single piece of documentation related to every monetary transaction of the organization. The main purpose of bookkeeping is to show the true and fair picture of the incomes and expenditures at the end of the financial year.
It is the responsibility of the bookkeeper to record the day-to-day business transactions systematically with complete information. These transactions like outgoing and incoming of cash, expenses incurred, sale and purchase of goods whether on credit or cash basis. The bookkeeper requires recording the transactions in daybooks and then transferring them to the concerned ledgers depending upon the nature of transactions. These ledgers are purchase ledger, sales ledger, purchase return ledger, sales return ledger, cash ledger, journal, etc. Post preparing a trial balance, look at the two methods below:
- The single entry system of bookkeeping
- The double-entry system of bookkeeping.
Single-entry bookkeeping means entering only one-sided transactions. This will not affect the two accounts. In this, transactions are recorded either on the credit side or debit side. Whereas in the case of double-entry bookkeeping, transactions impact both the sides of accounts that are credit and the debit side. Most industries follow a double-entry system in maintaining financial statements.
During the process of accounting, bookkeeping provides easier access to the book’s financial history. Bookkeeping is also very important for the users of financial statements such as government, investors, and financial institutions.
An investor always goes through the financial statements and books maintained by the company before investing in it. This will help him to know the true and detailed financial position of the company.
An accountant supervises the bookkeeper and works together with him/her.
Accounting
Its the language of a businessman. It provides information on the financial status of the organization. It starts with recording the transactions and ends with reports of the financial statements at the end of the financial year.
The monetary transactions are identified and organized systematically in accounting. The transactions are grouped with the other similar-natured transactions into common groups. After that, all the transactions are summarized in the form which is presentable to the users of the financial statements. Then a thorough analysis of these financial statements takes place in this process. This will help in the interpretation of the conclusion and results for the year-end. Then, these results are communicated to the interested parties.
The main purpose of accounting is to provide the users of financial statements with a true and fair position of the net incomes of the organization. The users of financial statements are investors, employees, managers, creditors, suppliers, the government, and the public. Financial statements should be maintained in a way that is easily understandable to them. These statements are prepared by using accounting. These statements state about wealth, profits, and financial position of the organization. Accounting branches into many regions. These branches are:
- Financial accounting
- Cost accounting
- Management accounting
- Human resource accounting
- Accounting of social responsibility
Accounting checks the records of financial history. Management takes all the financial decisions after taking referrals of financial statements.
Sometimes, it happens that the recorded transaction did not match with the expected transaction then management approaches the higher authorities also. Then the professional accountant sent the data to different authorities for further calculations.
Accounting is the summary of all the operations of the firm. Further, the branches of accounting help the organization to understand various incomes and expenditures such as cost accounting helps to decide the prices of the products, management accounting helps the management for future investments, and taking the right decisions for any legal firm. Lets understand the difference between Bookkeeping and Accounting with the help of a comparison chart we have prepared for you.
Comparison Table of Bookkeeping and Accounting
In general, there are many things by which you can differentiate between the two. Bookkeeping is smaller than accounting. Bookkeeping records the financial transactions whereas accounting summarizes to generate net results and make an analysis of them. Some main differences are mentioned below.
| Basis | Bookkeeping | Accounting |
|---|---|---|
| Definition | Bookkeeping is related to identifying, measuring, and recording monetary transactions in a systematic order. | Accounting is the process related to summarizing the data systematically and analyzing the financial results. |
| Purpose | Its main purpose is to store and manage the financial data of the firm. | Its main purpose is to analyze the data and make future related decisions. |
| What it is? | It comes under accounting. | A businessman’s language. |
| Skills required | There is no requirement for any special skills for bookkeeping. | Special skills related to analysis, recording and interpreting financial data are required. |
| Management decisions | They are not able to make management decisions by analyzing bookkeeping records. | Management decisions can be taken after going through the summary of financial accounts. |
| Preparing statements | In the case of bookkeeping, no financial statements are formed by using this information. | In the case of accounting, financial statements are formed by using accounting information. |
| Types | Single-entry bookkeeping and double-entry bookkeeping. | There are mainly two types of accounting. cost & management accounting. |
| Analysis | There is no analysis conducted of bookkeeping records. | In accounting, we use the recorded data of bookkeeping to analyze and interpret the results. |
| Employees | For bookkeeping, a bookkeeper is appointed who is supervised by an accountant. | A certified accountant is needed |
| Entry | In bookkeeping, it is required to enter the data of the day-to-day operations of the business. That is why the bookkeeper is required to enter data daily. | In accounting, a financial summary is required to be maintained at the end of the year or month, depending on the nature of the report and the demand of the company. |
| Tools used | In bookkeeping only journals and ledgers are used. | In accounting, balance sheets, profit and loss accounts, and cash flow statements are maintained and used. |
| Financial position | By using bookkeeping, we cannot define the financial position of the organization. | Financial status is defined. |
| Results | The results of bookkeeping provide the base for accounting. | The results of accounting show the financial position of the organization and help in decision-making. |
Conclusion
The administration of finances requires both accounting and bookkeeping. While bookkeeping is the planned and organized method for documenting financial activities, accounting is a bigger concept that includes interpreting, analyzing, categorizing, summarising, and presenting the financial information that bookkeepers collect. Although the basic objective of bookkeeping is documenting everyday financial transactions, accounting helps to give a picture of the financial condition and performance of a business.
You may speak with the specialists at Odint Consulting if you wish to know more about the difference between bookkeeping and accounting. Our staff of experts is knowledgeable about financial issues and can offer helpful insights to answer your questions. Further, our experts will guide you in choosing the best bookkeeping ad accounting services.
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FAQ’s
A bookkeeper has the job of giving precise, and latest monetary information about any business. A bookkeeper is always looking out for details. Some also contribute to strategizing.
Bookkeeping is related to identifying, measuring, and recording monetary transactions in a systematic manner whereas accounting is the process of summarizing the data systematically and analyzing the financial results.
To become an accountant, you would need a degree for a bachelor-level education. It will help you get into a beginner job.
On one hand, bookkeepers look over day-to-day transactions, while on the other hand, an accountant utilizes information, and bookkeepers record daily transactions; accountants use the information to produce a complex financial structure that assists in predicting business growth.
The two main bookkeeping techniques are single-entry and double-entry bookkeeping.
The steps in the bookkeeping method are as follows:
- Assessing financial transaction
- Documenting the transaction
- Establishing a ledger account
- Making a trial balance
