Are Accounting and Bookkeeping Different?

Accounting and bookkeeping are two essential parts of the financial statement prepared at the end of every quarter. Both of them are crucial parts of calculation and help the business to evaluate its worth. The success of a business depends on the number it is making and that determines the future decision’s the business owners might take.

 One can determine their business growth or failure by evaluating the yearly financial report.  Many times people confuse these two words and refer to them as if they are synonymous. Although these two Calculation processes are inseparable from each Other they are fundamentally two different methods.

There is a thin line that will help us distinguish the difference between them. While bookkeeping is a simple part of accounting, accounting has a much bigger scope to discuss. 

What is bookkeeping? 

 Bookkeeping is a simple process of recording financial transactions. A bookkeeper maintains of record of all the transactions in the original book of entry of a business. The process of bookkeeping is quite simple; it includes organizing all financial transactions of the company in chronological order. It is a systematic way of arranging day-to-day financial activities. 

In any business, a lot of transactions take place in one day and bookkeepers keep a record of each transaction like- 

• Payment of taxes 
•  sales revenue 
•  Repayment of loans (if any) 
• Income from interests 
•  Operational expenses 
• Payroll 
•  Investments etc. 

 This everyday record is the basis of accounting; therefore the book of accounts must be up to date. Any missing financial transaction will lead to an error in the process of accounting. So the accuracy of bookkeeping makes the accounting process accurate. 

 What Is Accounting? 

 Accounting is a vast process that includes interpreting, analyzing, summarising, and recording all financial transactions of a business. The financial statements in accounting are basically the precise summary of financial transactions of a quarter or a year. The statement tells about the financial position, cash flow, and potential growth of the company.  

Accounting is essential for consolidating financial information. The stakeholders in the company should have a clear picture of the financial details of the company. So that, they could make an informed decision before making future investments. Accounting also helps the business maintain are a timely and accurate record of the finances. It also helps us to understand the performance of a company in the financial period.  

The Basic Differences Between Accounting And Bookkeeping 

 As you have just learned about the two calculation processes that are quite interconnected, you have probably noticed their differences. Bookkeeping is only a part of the vast process of accounting. The majority of people are not aware of the differences between these two terms. They often use these two terms interchangeably without knowing their meaning. 

 Here are the basic differences between the process of bookkeeping and accounting- 

1.      Bookkeeping is only a part of the vast process of accounting while accounting includes many other processes in it. It takes the information it gets from the bookkeeping records and produces financial reports and statements. 

2.      Bookkeeping is the initial stage of the counting process where accounting starts and bookkeeping ends. Accounting has a much broader scope than bookkeeping. 

3.      As a result of bookkeeping, we get some information and inputs that we can use in the process of accounting. On the other hand as a result of the accounting, we get the final financial statements. These statements and reports are extremely necessary documents on the basis of which we can make decisions and judgments. 

4.      The purpose of bookkeeping is to keep a day-to-day record of the financial transaction of a company. But the purpose of accounting is to determine the growth of a company or otherwise.  

5.      The objective of bookkeeping is to summarise all the financial activities for a given period of time. On the other hand, the objective of accounting is to analyze the data collected by keeping process. It helps to make financial decisions on the basis of accounting analysis and interpretation. 

6.      The person who does the job of bookkeeping is called the bookkeeper. And the person who is responsible for accounting is called an accountant. 

7.      A bookkeeper does not need to have special knowledge or skill or education in a special discipline. This job is clerical in nature but accounting is a responsibility that needs the special skills of an accountant. It needs a special degree in accountancy and knowledge of accounting practices and policies. 

8.      The process of bookkeeping is a conventional one but the process of accounting depends on varied interpretations. Therefore the end result differs from one entity to another. 

Conclusion 

 Every business leaves bookkeeping and accounting solutions but only experienced and skilled professionals can do justice to the jobs. Financial experts work closely with the company to produce error-free financial reports and statements.