Bookkeeping and accounting are the two critical aspects of any venture. Bookkeeping and accounting keep track of all the financial data of the company, which helps in the smooth functioning of a company.
Both bookkeeping and accounting need basic accounting and economics knowledge. Confusion arises between both terms because although they are different, they are used for similar purposes.
They deal with the financial transactions of the company. Bookkeeping and accounting are usually used as synonyms, but both of them have different functions.
Key Takeaways
- Bookkeeping is the process of recording daily financial transactions, such as sales and expenses, systematically.
- Accounting is analyzing and interpreting financial information to make informed business decisions.
- Bookkeeping is a subset of accounting and provides the raw data for accounting.
Bookkeeping vs Accounting
Bookkeeping is the process of recording daily financial transactions such as purchases, sales, receipts, and payments in a systematic and organized manner. Accounting is a broader term that encompasses bookkeeping and other functions, such as financial analysis, budgeting, and strategic planning.
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The financial reports produced due to accounting are considered while making any decision that affects the company’s finance.
Comparison Table
| Parameter of Comparison | Bookkeeping | Accounting |
|---|---|---|
| Definition | Bookkeeping is related to recording, measuring, and identifying a company’s financial data. | Accounting is the process wherein the company’s financial data is summarized, and a report is prepared for the same. |
| Management | Management doesn’t take any financial decisions by analyzing the records of bookkeeping. | Management decides upon financial decisions after reading the summary report obtained by accounting. |
| Purpose | To store and organize the financial data of a company | To analyze the financial data and make future financial decisions accordingly. |
| Financial statement | The financial statement is not prepared using the information obtained from bookkeeping. | The financial statement is prepared using accounting information. |
| Skills | Bookkeeping doesn’t need the bookkeeper to have any particular skill set to handle and manage financial records. | An accountant needs special skills to record, interpret, and analyze financial data to prepare reports. |
| Analysis | No analysis is carried out. | Accounting uses the record from bookkeeping to analyze the financial data to prepare reports. |
| Types | Single entry and double entry. | Cost accounting and managerial accounting. |
| Employee | An accountant oversees the work of a bookkeeper. | An accountant that is certified doesn’t need guidance. |
| Entry | A bookkeeper records the financial data daily. | The accountant prepares the financial summary at the end of the month or every year, depending on the type of report and demands of the company. |
What is Bookkeeping?
Bookkeeping is the process of recording the financial data of a company regularly.
The financial data includes sales, purchases, receipts, etc., of an individual or a company. The bookkeepers handle the bookkeeping.
Bookkeeping is crucial in a business because it provides a systematic order to all the financial data.
During the accounting process, it’s easier to access the book of all the financial records to make financial reports and statements.
Bookkeeping is also essential for all external financial sources like investors, financial institutes, and the government.
Before an investor makes a decision to invest in a company, he will check the financial records of the company maintained in bookkeeping.
The accountant constantly supervises a bookkeeper, and they sometimes work together as well.
Bookkeeping provides the company with a record of all its revenues, because of which the company can tally its expected income and expenditure goals with the actual income and expenditure.
This helps them to maintain a benchmark for future financial decisions. There are two significant types of bookkeeping.
There is double-entry bookkeeping, and then there is single-entry bookkeeping. In the latter type, there is only an entry of one side of the transaction.
It either only records the credit or the debit entries of the company. In double-entry bookkeeping, both the credits and debits are recorded.
For every credit, a debit is also recorded and vice versa.
What is Accounting?
Accounting is the analysis, interpretation, and summarization of the financial data of a company. The accounting checks the bookkeeping records and makes a financial report.
All financial decisions are taken by management only after going through the accounting reports.
The management even approaches higher authorities if the reports spot the financial transactions as different than expected.
Professional accountants take out the gist of the data about finances. Then, this data is sent to different authorities for further work.
The accounting report has a record of the financial transactions that take place over a decided accounting period. It is a summary of the firm’s operations.
Also, it contains information about the financial position as well as the cash flow of the firm. There are two types of accounting: cost accounting and managerial accounting. Cost accounting helps a businessman decide the price of a product.
Managerial accounting helps the management make proper decisions regarding the company’s future investments.
Main Differences Between Bookkeeping and Accounting
- Bookkeeping records the financial data systematically, but accounting analyses the financial records and prepares a financial report for the statement.
- Bookkeeping doesn’t help the management make any financial decisions, whereas the reports prepared by an accountant help the management make decisions regarding future financial transactions.
- Bookkeeping isn’t used to make financial reports, but the reports prepared by accountants help make financial reports.
- A bookkeeper doesn’t need any particular skill set to handle bookkeeping, whereas an accountant needs a certificate to do his job.
- Bookkeeping records aren’t analyzed; the accountant uses them to prepare their financial summary.
- The two types of bookkeeping are single-entry a double-entry. The two types of accounting are cost accounting and managerial accounting.
- Accountants supervise bookkeepers, but certified accountants don’t need any guidance.
- The data is recorded in bookkeeping daily, whereas the financial reports are prepared monthly or yearly, depending on the company policy.
- https://www.tandfonline.com/doi/abs/10.1080/09585209500000049
- https://www.journals.uchicago.edu/doi/abs/10.1086/229739
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
