As an accountant, how do you grow a keen sense of the Basic differences between accounting and bookkeeping? This blog will help you understand these terms and how they differ. We have a quick guide outlining what the two terms mean, including their differences.
Bookkeeping and accounting may look like the same job to an untrained eye. But, in reality, both are inherently different and have their own sets of duties to perform. They might seem similar because both are concerned with financial data, need basic accounting knowledge, and produce reports with the help of financial transactions. Read ahead to find the differences between accounting and bookkeeping.
Understanding Bookkeeping
To find the differences between accounting and bookkeeping, get to know about bookkeeping.
Bookkeeping is a systematic process of recording, maintaining, and classifying all financial transactions of an organisation. In other words, bookkeeping is the recording and summarising of a company’s financial transactions chronologically and systematically that focuses on maintaining an accurate record of the monetary transactions. Companies make major investment decisions using this information. Bookkeeping provides reliable information on the performance of the company.
The process of bookkeeping involves the following steps:
- Identifying and recording a monetary transaction
- Processing invoices
- Preparing ledger accounts for all the Monetary transactions
- Preparing a trial balance using the ledger account balances
What do Bookkeepers do?
A bookkeeper is a person who records the financial transactions of a business accurately. He records every entry on a timely basis by keeping a log of all the transactions in the business books.
The tasks of a bookkeeper include- calculating and recording incomes and expenses, creating sales invoices, reconciling bank transactions, and raising purchase orders. They also balance the accounts of a business.
Understanding Accounting
Learn about accounting to get the differences between accounting and bookkeeping.
Accounting refers to the systematic recording, measuring, and communicating of information relating to the financial transactions in a business. We call it the language of business. Accounting aims to give a clear picture of the financial statements to the users of financial statements. These users are employees, creditors, investors, and the government.
Accounting involves the following steps:
- Preparing to adjust entries
- Reviewing the financial statements of a company
- Analysing operational costs
- Financial forecasting
- Organising budgets
- Finishing the income tax returns
- Helping the business owner understand the effect of financial decisions.
What do Accountants do?
An accountant oversees accounts, produces financial statements, and handles tax returns that comply with the HMRC’s regulations. There are many types of accountants. Some work for multiple companies. Others might focus on individuals.
In the end, an accountant is responsible for adjusting the records made by the bookkeepers at the end of the financial period. It involves preparing journal entries and producing the financial statements of a company. The financial statements include the cash flow statement, the Statement of Profit& Loss, and the Balance Sheet.
Accounting Versus Bookkeeping
Now, let us compare to find the differences between accounting and bookkeeping.
Though we use bookkeeping and accounting interchangeably, a thin line of difference exists between them. Accounting has a broader scope than bookkeeping. Bookkeeping forms part of accounting. In other words, bookkeeping is a base of accounting. The major points of differences between the two are as below:
Definition: Bookkeeping refers to identifying and recording financial transactions only. We can do it either manually or automatically. Accounting is generally the process of summarising, interpreting, classifying, and communicating the financial transactions of an organisation to provide relevant financial data.
Stage: Bookkeeping acts as the beginning stage. It is the base for accounting. Accounting begins where bookkeeping ends.
Objective: Bookkeeping ensures maintaining systematic and proper records of financial transactions made by the business. A bookkeeper should also keep the books balanced. Accounting aims to ascertain the Financial position of the company and further communicate the financial information to the stakeholders. Hence, it goes beyond just maintaining a record of transactions.
Preparation of the financial statements: A bookkeeper is not responsible for producing the financial statements. He may be required to dig into Key areas of income and expenditures in the business and communicate them to management for review. However, it is the primary function of accounting to prepare and produce financial statements. The company uses the financial information and submits it to the clients.
Decision making: Management cannot make decisions based on bookkeeping since the information produced by a bookkeeper is too Basic to facilitate management decisions. However, an accountant provides a detailed view of a business’s financial status. Thus, management can rely on accounting for making relevant business decisions.
Skills required: Bookkeeping requires mechanical skills to perform the tasks. Accounting needs high-level learning to understand and analyse the concepts of accounting.
Persons involved: The person who performs the bookkeeping task is called a bookkeeper. The person concerned with accounting is known as an accountant.
Analysis: Bookkeeping requires no Analysis. However, there are exceptions. For example, the management may need to know the cost or price of a particular product. A bookkeeper can easily do these types of analyses. Accounting is concerned with analysing data and creating business insights to provide detailed information.
Types: Accounting primarily has two types of bookkeeping- single and double-entry bookkeeping. The most common types of accounting are- Financial accounting, Managerial accounting, Cost accounting, Auditing, Tax accounting, Accounting information systems, Forensic accounting, public accounting, and Governmental accounting.
Hence, the role of accountants and bookkeepers differ from business to business. Even though the two often create confusion, they are different from each other.
Conclusion
We hope that you found this blog helpful. In summary, the roles of the accountant and bookkeeper are very different. But they work very closely together. An organisation can achieve its real value when both work together. So, we believe that bookkeeping and accounting are crucial parts of every business. We have been in this domain for several years, serving many clients. You can save ample time and focus more on your core competencies by outsourcing your needs to us.
At Vakilsearch, we have a team of experts dedicated to providing the best services to clients. We update our bookkeepers and accountants with the changing market scenarios. We have trained them to work on emerging technologies. So. you can enjoy our hassle-free accounting and bookkeeping services. If you are looking for any advice, or you have any requirements, feel free to write to us. You can also talk to our representatives if you have any queries about what is process and the differences between accounting and bookkeeping services.
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