In the business and financial world, many people use the terms bookkeeping and accounting interchangeably. However, these concepts are totally different from each other. The former(bookkeeping) is considered to be the first step to the latter (accounting). So, in this article, we will learn the absolute difference between bookkeeping and accounting. This blog contains the following main topics.
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Definition Of Bookkeeping
In economics, bookkeeping refers to the systematic activity of classifying, measuring, and recording financial data or transactions of an organization. Individuals have to follow the fundamental concepts and conventions of accounting in order to perform the bookkeeping process effectively. Bookkeeping is actually the basis of accounting i.e it is always performed before the process of accounting.
The individuals who perform the bookkeeping processes are called bookkeepers. They actively practice and maintain all the bookkeeping records of an organization. The main objective of bookkeeping is to reveal the right picture of income and expenditure at the end of the accounting spell. The two major categories of bookkeeping are single-entry bookkeeping and double-entry bookkeeping. In a nutshell, bookkeeping involves the following steps.
- Identifying all the financial transactions
- Recording the financial transactions.
- Preparing the ledger accounts and trial balance.
Also, Bookkeeping is an easy and rapid activity that a person with limited knowledge and skill set can also perform.
Definition Of Accounting
Accounting is the process through which the financial performance and positions of the business ventures are communicated to the users of the financial statement. Accounting is the complete process that starts from a recording of transactions and ends with reporting all the financial analyses or statements at the end of the financial period. The process of accounting generally starts where the bookkeeping ends.
The reports generated by various accounting experts are invaluable in helping management make informed to make excellent business decisions. The main objective of accounting is to provide a clear image or insight to its users, including investors, creditors, the government, and employees.
Difference Between Bookkeeping And Accounting(Table)
|Basis For Comparison||Bookkeeping||Accounting|
|Definition||Bookkeeping is the activity of identifying, measuring, and recording the everyday financial transactions of an organization.||It is the process of interpreting, summarizing, and communicating the financial affairs which were classified in the ledger account.|
|Objective||The main purpose and objective of bookkeeping is to store and organize the financial data of a firm.||It helps to analyze the financial data and make future financial decisions accordingly.|
|Decision Making||Decisions cannot be made on the basis of bookkeeping data||Decisions can be made on the basis of accounting records.|
|Analysis||No analysis is required.||It uses the record from bookkeeping in order to analyze the financial data and create insights for the business|
|Tools||Journal and ledgers||Profit and loss accounts, balance sheets, and cash flow statements.|
|Determining Financial Position||Does not show the financial position of a business||Shows a clear image of the financial status of a business|
Key Differences Between Bookkeeping And Accounting
Since we are comparing bookkeeping vs accounting, let’s have a look at some of the key differences between them as well.
- In economics, bookkeeping refers to the systematic activity of classifying, measuring, and recording financial data or transactions of an organization. On the other hand, Accounting is the process through which the financial performance and positions of the business ventures are communicated to the users of the financial statement.
- Bookkeepers are responsible for performing bookkeeping activities whereas accountants are responsible for performing accounting tasks.
- Accounting starts where bookkeeping ends.
- Bookkeeping does not require a person with any special skill set to handle it. On the other hand, accountants need to have special skills and certifications in order to perform the accounting process.
- While bookkeeping does not reveal the financial status of an organization accounting helps users in showing the true and clear picture of the financial position and profitability of a business.
- The two types of bookkeeping are single-entry and double-entry systems. On the other hand, cost accounting and managerial accounting are the types of accounting.
So, with the above discussions and explanations, we can simply say that bookkeeping is actually an initial stage of accounting. Thus it works as a platform for the accounting process.
Both bookkeeping and accounting are important for a business as they help the company maintain its finances and in making excellent decisions. Bookkeeping refers to the systematic activity of classifying, measuring, and recording financial data or transactions of an organization. On the other hand, accounting is the complete process that starts with the recording of transactions and ends with reporting all the financial analyses or statements at the end of the financial period. Bookkeeping activities are clerical ones and so, therefore, a little knowledge of business and commerce is sufficient for it. On the other hand, accountants who perform accounting activities should have a thorough knowledge of commerce.