Difference Between Bookkeeping and Accounting
Bookkeeping and accounting are integral parts of accountancy, each adhering to different concepts and purposes. While bookkeeping emphasizes the systematic management of records and books of the enterprise, accounting keeps track of each transaction through proper documentation, ensuring holistic control over the company’s finances. Let’s deep dive into into key difference between bookkeeping and accounting.
What Exactly Does Bookkeeping Imply and What is its Significance?
Bookkeeping is the practice of maintaining a company’s books of accounts systematically, ensuring utmost transparency and accuracy. It essentially keeps an unwavering tab on the accounting transactions, keeping a record of all the figures in a book of account no matter the size. Generally speaking, when one talks about bookkeeping, it primarily has to do with accounting resources such as cash books, journal ledgers, and other subsidiary books.
Bookkeeping has nothing to do with account disclosure or data interpretation; it simply deals with apt tracking and recording of accounting figures, which are the result of business transactions. Bookkeeping is an extensive process, comprising the given steps:
- Identifying a financial transaction: This step requires keeping track of the financial transactions, which are referred to as the movement of funds occurring between the company and the third party or employees or all of them.
- Recording or posting debit or credit: In this step, the bookkeeper sorts the transactions based on their different status.
- Producing invoices: As the name suggests, this step is all about creating invoices whenever the trade occurs between the company and any third party, including suppliers, vendors, etc.
- Preparing financial statement: This step requires preparing a financial statement based on the transactions that come into effect arising from the business undertaking, procurement of resources, or making payment to vendors. Any kind of fund transaction does not go unnoticed when preparing a financial statement regardless of threshold.
What Do You Understand By Accounting?
Accounting ensures an extensive tracking and recording of financial transactions, irrespective of mode, threshold, or nature, that occurred in the FY. It is all about interpreting, summarizing, computing, and recording the financial data.
It steers clear the ambiguity, helping firms to understand their fiscal performance clearly with a holistic view of assets and liabilities. Accounting is not carried out by professionals involuntarily as it adheres to certain principles and norms set forth by the governing institutions.
Accounting ensures a holistic view of the financial standing, allowing stakeholders to make informed decisions as and when required. In accounting, certain steps are being followed by accountants to maintain the financial integrity of the company while ensuring utmost compliance and accuracy. These steps include:
- Summarizing the data: This step involves recording and summarizing financial data or transactions in one place.
- Analyzing the data: Next, the recorded data undergo profound analysis for accuracy and relevancy.
- Interpreting the data: As the name suggests, this step provides for data interpretation, which primarily involves ensuring the apt representation of transactions based on their status.
Difference between Bookkeeping and Accounting: A Tabular View
| Basis | Bookkeeping | Accounting |
| Definition | Bookkeeping keeps track of financial transactions and records them wherever necessary. It essentially deals with the apt management of a book of accounts. | Accounting refers to a process of measuring and recording business fiscal transactions that occurred during the FY. |
| Objective | Bookkeeping objectively prepares the book of accounts while aptly monitoring the fiscal transactions. | Accounting exceeds beyond recording of financial data. It also involves proper analysis and interpretation of all transactions. It is a prominent Difference Between Bookkeeping and Accounting. |
| Scope | Bookkeeping is somewhat limited as it does not comprehensively span all the facets of finance management. | Accounting ensures holistic control over each and every transaction and provides for in-depth data analysis and explicit reporting. Hence it adheres to a larger scope. |
| Decision Making | Soley relying on bookkeeping won’t allow companies to make informed decisions due to its limited scope. It is a key Difference Between Bookkeeping and Accounting. | Since accounting ensures a holistic view of a company’s finances, it eases the blow for stakeholders when it comes to decision-making. |
| Analysis | Bookkeeping has nothing to do with transaction analysis; it merely records them with accuracy. | In Accounting, accountants can undergo rigorous analysis of financial data to fetch key insights that help with decision-making, giving stakeholders what they want. |
| Skill Required | Although Bookkeeping seems complicated, it does not require highly skilled individuals. A person with fundamental accounting skills can cater to bookkeeping errands. | Since accounting spans almost all facets of financial transactions and provides for in-depth analysis and interpretation, it seeks seasoned individuals extensively specialized in accounting principles and norms. |
| Reflecting Position of Business | Bookkeeping cannot yield a holistic view of the company’s financial prowess. It is merely an accurate representation of financial data. | Accounting properly sorts each transaction with clarity, separately showing assets and liabilities. This helps companies to have a simpler view of financial performance. This parameter plays vital role in understanding the Difference Between Bookkeeping and Accounting. |
| Principles of Accountancy | Bookkeeping adheres to fundamental accounting concepts and conventions. Professionals cannot voluntarily deviate from these notions while catering to bookkeeping endeavors. | Accounting also falls in the same vein as it adheres to standard practices and norms. However, the way it is carried out can differ company-wise. |
| Level of Work | Although bookkeepers do not fall in the same vein as high-paid executives, they pay the utmost attention to detail. The gravity of work and skill for bookkeeping may be nominal, but it is an integral and vital part of financial management. | Accounting seeks in-depth expertise and association of seasoned accountants, who typically serve the mid-level management in most companies. |
| Supervision | The bookkeepers are helmed by the seasoned accountant. | Accountants (s) work under the supervision of expert professionals like CAs, mostly in bigger organizations. Keeping this in mind helps under the Difference Between Bookkeeping and Accounting. |
FAQs That Ease Understanding Concerning the Difference Between Bookkeeping and Accounting
Why is bookkeeping important?
Bookkeeping is a way of overcoming ambiguity regarding financial transactions as it ensures apt tracking and recording of every transaction.
What does a bookkeeper do in general?
Bookkeepers perform a multitude of tasks but mostly revolve around recording fund movements, maintaining ledgers, and reconciling bank statements.
What do you understand by double-entry bookkeeping?
Double-entry bookkeeping is all about recording each transaction in at least two accounts, as credits and debits. It helps understand the implications of each transaction and its effects from different standpoints.
What do financial statements look like?
In general parlance, financial statements refer to documents like income statements, balance sheets, and cash flow statements.
What exactly does general ledger mean?
A general ledger entails almost every financial transaction of the business that occurred in the past.
What are accounts receivable and payable?
Accounts receivable refers to an amount customers owe toward the company for goods or services delivered on credit. Meanwhile, accounting payable is an amount a company owes to any third party for goods or services received.
What is a trial balance?
A trial balance is a report that ensures an explicit view of all ledger accounts to determine bookkeeping entries’ accuracy.
What does an audit mean in the financial management?
In financial parlance, the audit refers to systematic due diligence of financial records and statements within the purview of underlying norms and practices.
What do you understand by accrual accounting?
Accrual accounting ensures seamless recording of revenue and expenses when they come into effect.
What do you mean by the cash accounting?
Cash accounting aptly spans and records expenses and revenues only when cash is paid or received.
What are adjusting entries?
Adjusting entries refer to journal entries undertaken at the accounting period’s end to update account balances.
Conclusion
That is our take on the difference between bookkeeping and accounting. We hope that by now you have a brief understanding of both subject matters. Knowing the difference between bookkeeping and accounting is vital to understanding the nuisances associated with financial management. This not only helps you steer the company in the right direction but also ensures accurate decision-making.
Since both fields are distinct and require skilled resources, managing these can be taxing, time-consuming, and costly. If you are looking for a viable solution to this fundamental problem, let Adviso be your long-term partner. Adviso has been spearheading the field of accounting and bookkeeping for years, ensuring seamless financial management for countless clients globally. We emphasize utmost accuracy, compliance, and professionalism for clients seeking help with these endeavors. Connect with us today to begin a journey of hassle-free account management.
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