Bookkeeping is an essential part of all financial transactions. Regular updates of financial transitions taking place in a business, company or even household is quite essential to keep an idea about the expenses, loss and profits on a day-to-day basis. This helps to plan your future financial transactions accordingly. This updated record of transactions gives a clear idea about the performance and progress of a company or business and can determine the future plan of action for improvement. This is also essential for tax audit at the end of the financial year. Accounting is related to bookkeeping in the fact that they both are related to reporting of financial transactions but accounting has the capability of giving a whole idea about the financial health of the business or company whose book keeping has been done. They both are in fact interdependent on each other. Separately appointing a bookkeeper and an accountant is also necessary in big companies to get a better and clear insight about the financial condition of a company or business. This helps in implementing proper measures to increase the revenue generation and better profit of the company or business.
On that note, both bookkeeping and accountancy are vital for a business firm and play an important role in financial management. Though it may appear to be the same for some individuals, both practices follow a different set of rules and benefit an organisation in different ways.
That being said, let’s now move on to find out what exactly is booking and accounting and their purpose. While at it, we will also make our way to find out points which set them apart from one another.
What is Bookkeeping?
Bookkeeping can be defined as a process of recording everyday financial transactions of an organisation. To practice bookkeeping effectively, individuals need to follow the fundamental concepts and conventions of accounting.
Bookkeeping Can be Divided into Two Types –
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Single-entry Bookkeeping
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Double-entry Bookkeeping
It is primarily responsible for recording financial transactions which in turn serve as a basis for accounting. Hence, bookkeeping can be credited as an integral component for building a financially sound business venture.
Process of Bookkeeping
The composition of bookkeeping serves as an essential point of difference between bookkeeping and accounting.
Let’s check out these pointers below to find out which processes are involved in bookkeeping.
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Identifying and recording financial transactions.
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Posting all debits and credits of a venture accurately.
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Creating invoices.
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Preparing and maintaining general ledger accounts.
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Preparing and managing trial balances.
Test Your Knowledge:
What is a bookkeeping journal? Choose the most suitable option from these –
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Bank documents
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Personal diary
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Books of original entry
Now that we have gained a fair idea about bookkeeping let’s move on to find more about accounting.
What is Accounting?
One can simply define accounting as a process that helps firm owners to record, categorise, summarise and even analyse financial transactions of their venture. It uses the information compiled during bookkeeping for preparing various financial reports, which, in turn, prove effective in determining a number of things.
Generally, accounting can be divided into these types –
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Financial accounting
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tax accounting
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Internal auditing
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Management accounting
Other than these, public accounting, government accounting, etc. form a part of accounting. Notably, as a concept, accounting is broader than bookkeeping and is undoubtedly a point of difference between bookkeeping and accounting.
It not just comes in handy for business owners but also helps stakeholders and investors to gauge the financial standing of an organisation at any given point of time.
Process of Accounting
Go through these following pointers to distinguish between bookkeeping and accounting more accurately –
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Recording adjusting entries.
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Formulating and analysing financial statements.
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Preparing ledger accounts and trial balance.
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Assessing operational cost.
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Completing tax returns.
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Weighing the impact of decisions pertaining to finances.
Hence, accounting is an indispensable part of any business venture irrespective of the scale and size of its operation. On that note, let’s quickly move along to glance through the basic difference between accounting and bookkeeping.
Here some of the major difference between bookkeeping and accountancy in tabular form
Difference Between Bookkeeping and Accounting
|
Parameters |
Bookkeeping |
Accountancy |
|
Definition |
It is the process in which a firm owner identifies, measures and records everyday financial transactions. |
Accountancy is mostly concerned with interpreting, summarising and communicating financial data about transactions. |
|
Objective |
It helps to record all financial transactions systematically. |
It helps to measure a firm’s financial standing and communicates the same to concerned entities. |
|
Analysis requirement |
It does not require to be analysed. |
It uses all information compiled through bookkeeping to analyse data and interpret them to form informative reports. |
|
Financial statement |
Financial statements are not a part of bookkeeping. |
Financial statements are prepared through the course of accounting. |
|
Decision-making role |
It does not facilitate or impact the decision-making process of a firm. |
It impacts the decision-making process significantly. |
|
Skills required |
It does not demand a particular skill set. |
Accounts are required to possess strong analytical skills. |
Check out this pie chart to find out the booking and accounting difference in graphic illustration.
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