Every business needs to practice diligent bookkeeping and accounting process to prepare its financial records at the end of the year/ quarter. These two essential elements help companies analyze and evaluate their strengths and areas of improvement while equipping them to make better decisions. While most people use the term “bookkeeping” and “accounting” interchangeably, it is essential to recognize the thin line between these two critical elements of accountancy. Bookkeeping is a significant part of accounting, while accounting comprises a broader scope than bookkeeping.
Listed below are a few factors that can assist you in understanding the differences between the two terms.
Accounting relates to interpreting, analyzing, summarising, and reporting the financial transactions of a business. It involves preparing financial statements that summarize your company’s financial position, operations, and cash flow. In contrast, bookkeeping indicates the process of recording and maintaining all the financial transactions in an organization’s books of accounts. It comprises summarizing and chronologically organizing all your company’s dealings in a systematic format. Thus, it focuses on the day-to-day operations associated with financial activities and transactions.
Accounting involves the utilization of information obtained by bookkeeping to prepare financial statements. Hence, it begins where bookkeeping ends and has a broader scope. Bookkeeping is more of a foundation or base of accounting. It can be understood as one of the critical segments of accounting.
Purpose and result
The purpose of accounting is to report the financial robustness of your business by obtaining the results of operating activities. This further helps businesses in making informed decisions and judgments. However, bookkeeping aims to maintain a systematic record of your business transactions that can also provide critical inputs for accounting.
The overall accounting process requires the skills of an accountant who holds extensive knowledge of various accounting policies and practices. The person responsible for accounting is known as an accountants. However, bookkeeping is clerical by nature. It does not require any specific skill set or knowledge. The person who carries out bookkeeping is referred to as a bookkeeper.
Rules to follow
The methods and procedures of accounting and the skills needed to analyze and interpret financial reports efficiently can vary from one entity to another. Accounting, on a whole, helps businesses prepare accurate and timely records of their finances. However, the bookkeeping process always stands in accordance with the concepts and conventions of accounting. Consequently, the accuracy of bookkeeping determines the accuracy of the accounting procedures followed by businesses.
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