Bookkeeping vs Accounting
There are a lot of processes involved in the business that handles large amounts of data. Processes like bookkeeping and accounting provide valuable insights into the financial situation of the company.
Based on this information, the company can also modify its business strategy to improve their statistics.
The terms bookkeeping and accounting often confuse people and they think of them as similar professions because terms deal with financial data. However, that is not true
The main difference between bookkeeping and accounting is that bookkeeping involves keeping all the records of financial transactions while accounting involves analyzing and interpreting the data.
Bookkeepers have to keep a record of all the data that is involved in the business transactions. They do not have to worry about classifying or analyzing any of it.
That job is of accountants. They classify and interpret the data that would provide information about business performance to the company executives.
Some other features that differentiate between bookkeeping and accounting are shown in the comparison table below:
|Parameter of Comparison||Bookkeeping||Accounting|
|Definition||A process that involves recording financial data.||A process that involves analyzing and interpreting financial data.|
|Skills required||Bookkeeping does not require any specific skill set.||Accounting requires specific skills to handle the data.|
|Objective||Keeping the records of financial data proper and systematic.||Analyzing the financial data and reporting to senior authority.|
|Decision making||Bookkeeping data cannot be used for decision making in the company.||Accounting data can provide critical business details.|
|Financial statements||Financial statements are not prepared in this process.||Financial statements are prepared in this process.|
What is Bookkeeping?
Bookkeeping is the process of tracking and recording the financial transactions of a company. Bookkeeping allows the company to track all the information and make important financial decisions.
Businesses must hire a bookkeeper who can keep track of all the financial data. Some small businesses overlook the importance of bookkeepers.
Because they think that it would cost them extra. But they can help in generating revenue if the company analyzes the collective information provided by bookkeepers.
So it is important to keep the record of every penny spent. Bookkeepers do not need to have any specific skill set. They do not need a college degree such as an accounting degree.
All they need to know is how to handle and keep track of the financial data. The data that is compiled in bookkeeping is not used by the management for important decisions in the company.
There are two types of bookkeeping: single-entry bookkeeping and double-entry bookkeeping.
Single-entry bookkeeping means that you record one transaction only one time in your register/software. It is most suitable for simple and small businesses.
Double-entry bookkeeping means that two entries have to be made for each transaction in the register/software. This helps in calculating profit and loss. One entry in one column is called debit and the other entry is called credit.
Financial statements are also not prepared in this process. The data that a bookkeeper keeps track of include:
- Customer payments
- Loan payments
- Payment to supplier
- Asset depreciation
What is Accounting?
Accounting is the process of analyzing and interpreting the financial data of a company. This is an important aspect of any business as it allows business leaders to make important decisions about their company.
Accountants need specific skill sets since they need to handle the data and analyze them. Companies usually require a 4-year college degree in accounting.
They help you prepare for the Certified Public Accountant (CPA) exam too. Financial statements are also prepared in the process of accounting.
Financial statements are reports that show how the company is performing financially. It includes the income statement, cash flow statement, and the balance sheet.
Accountants help businesses assess how the company will perform five years from now. Apart from the positive impact, the statistics also show the flaws that exist in the business strategy.
There is a common language that accountants use as a standard procedure for their financial statements. This is called GAAP (Generally Accepted Accounting Principles).
This language has been developed so that whenever there is a need to compare the financial statements of different companies, it is easier to understand because of the GAAP.
The accountant is responsible for:
- Summarizing the data
- Analyzing the data
- Reporting data to senior authority
- Prepare financial statements
- Calculating the amount of tax
Main Differences Between Bookkeeping and Accounting
Some of the features that differentiate between Bookkeeping and Accounting are given below:
- Bookkeeping is a process that involves recording the financial data while accounting is a process that involves analyzing and interpreting the financial data.
- Bookkeeping does not require any specific skill set while accounting requires specific skills to handle the data.
- The objective of bookkeeping is to keep the records of financial data proper and systematic. The objective of accounting is to analyze the financial data and reporting to a senior authority.
- Bookkeeping data cannot be used for decision making in the company whereas accounting data can provide critical business details.
- Financial statements are not prepared in the process of bookkeeping while financial statements are prepared in the process of accounting.
Bookkeeping and accounting are efficient elements to handle business data. In the past, there used to be a heavy load on humans to perform these tasks as there was no software to help them.
These days there are efficient software and tools available to help bookkeepers and accountants to handle the data well. They can store and analyze large amounts of transactions in a single day.
New technologies always come and previous ones become obsolete. It is the job of bookkeepers and accountants to keep themselves up-to-date with new tools and software.
This ensures the overall advancement of the company and also adds value to customer services.
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The following is a collection of the most used terms in this article on Bookkeeping and Accounting. This should help in recalling related terms as used in this article at a later stage for you.