Accounting and bookkeeping are two terms that are used interchangeably in financial industry. But the reality is these terms are different from each other. Nevertheless, people get confused and keep on using them in a wrong matter without even knowing the proper meaning. If you’re also doing this then you’re making a mistake. Being in a financial sector, it is important to know the proper meaning of every key term associated with financial industry, right. Therefore, this article is a complete guide highlighting a difference accounting and bookkeeping.
So ready to learn? Let’s jump in.
I will start with the basics first.
Have a look at the definition of each term.
What is accounting?
Accounting is the broader concept than bookkeeping. It is a process of summarizing, interpreting, and communicating financial transactions, which you classified in the ledger account. In the dictionary, accounting stats as, “the skill or practice of maintaining and auditing accounts and preparing reports on the assets, liabilities, etc of a business.” No doubts, accountants can do more than record transactions. They also explain you what that financial data actually means to key stakeholders within the country.
Well, the goal of accounting is to provide a clear view of financial statements to its users, which includes investors, creditors, employees, and government.
What is bookkeeping?
Bookkeeping is a process that records financial transactions in a chronological order on a daily basis. This basically talks about identifying, measuring, and recording, financial transactions. For doing the bookkeeping work, a person has to follow the fundamental concept of accounting. In fact, a bookkeeper records purchases, payroll, sales, payment of bills, etc. Additionally, your math skills must be great to do the bookkeeping work.
You can say that the goal of bookkeeping is to record a financial transactions of a company in a proper and systematic manner.
Now dig into the difference between these two terms below.
Major differences between accounting and bookkeeping
– Financial position
Taking bookkeeping into consideration – it doesn’t display the financial position of a business. You can’t exactly have an idea where your business stands in the industry.
On the other hand, accounting does show you the financial records of your company in a clear picture. It helps you know the position of your business and where you exactly stand in the market.
– Decision making
In bookkeeping, you can’t take any decision provided in it because you don’t have sufficient records. As a management, taking decision based on bookkeeping records will not work in long run.
Whereas accounting is thoroughly analysed because the data you get is provided by accountant himself. Therefore, management can take any critical decision from the data obtained from accounting.
– Skills required
For bookkeeping, you no need to master over particular kind of skills or any skill set. Even if you have minimal skills you can do it.
On contrary, accounting does require a special set of skills due to its analytical and complex nature. Therefore, you have to possess strong analytical skills to master over accounting.
Well, bookkeeping are basically of two types which contains Single entry and Double entry bookkeeping. In single entry, you record income and expenses for the transactions in a cash registrar. And in Double entry system, you start with a journal following a ledger, a trial balance, and eventually financial statements.
On the other side, in accounting, there is no need of preparing a company’s budgets and plans, loan proposals. So there is no type involved in accounting.
– Bookkeepers and Accountants
Bookkeepers should be accurate in their work and have enough knowledge about financial topics. Usually an accountant sees and examines a bookkeeper’s work.
Whereas an accountant having sufficient experience and education can obtain the title of Certified Public Accountant (CPA).
– Accounting and Bookkeeping duties
Duties involved in bookkeeping are – processing invoice, maintain a payroll system, chasing customers for payment, posting journal entries, preparing initial financial transactions, filing and document management, recording business transactions, etc.
Accounting duties include – auditing, financial management advise, tax strategy, tax planning, completing income tax return, financial forecasting, organising budgets, analysing business performance, etc.
The bottom line
So guys, this was a complete difference enlisted between bookkeeping and accounting. Now I hope you have completely understood the major difference between them and what all work involves in accounting and bookkeeping. If you want to master your business and maintain financial records of it then you have to have a good knowledge of accounting and bookkeeping.
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