Learn the Difference between Bookkeeping and Accounting

In the finance field, the most commonly used terms are bookkeeping and accounting. Some people think that both are similar concepts. But, accounting and bookkeeping are two different accountancy processes. In general, bookkeeping is limited to the recording of financial transactions. On the other hand, accounting deals with the interpretation, analysis, reporting, and summarizing of financial data. If you would like to know how bookkeeping is different from accounting, read this blog. For your better understanding, here, we have shared the major difference between bookkeeping and accounting.

Before we move on to the comparative study of bookkeeping vs. accounting, first, let us have a look at a brief overview of bookkeeping and accounting concepts.

What is Accounting?

Accounting is the process of measuring and recording all financial transactions that occur in a fiscal year. It is also known as the language of business. In simple terms, accounting can be defined as a systematic process that records, measures, and communicates information about the financial transactions that happen in a business. It comprises summarizing, analyzing, and documenting the data.

Especially, with accounting, one can determine a company’s financial status and present the same to the stakeholders. Moreover, accounting also helps a business in making short and long-term decisions, as well as conveying a company’s trustworthiness to the market.

The person who is responsible for handling all accounting activities is called an accountant. The ultimate objective of accounting is to provide a clear image of financial statements to investors, creditors, employees, government, and other users.

Accounting Process

The process of accounting includes the following

• Making adjustments to entries
• Preparing and evaluating financial statements
• Assessing the cost of operations
• Filing tax returns
• Making financial decisions

What is Bookkeeping?

Bookkeeping is the process of recording and categorizing an organization’s financial transactions for a fiscal year in a systematic manner. Primarily, bookkeeping focuses on keeping an accurate record of all monetary or financial transactions of a company.

In a nutshell, bookkeeping is the science and art of systematically identifying and recording accounting transactions in the right books of accounts. It mainly deals with the proper maintenance of the books such as Journal, Cash Book, Ledger, and other subsidiary books.

The person who is responsible for maintaining bookkeeping records is called a bookkeeper. In general, correct and precise bookkeeping is essential for a business because it gives reliable information about an organization and helps to make major investment decisions. Unlike accounting, bookkeeping does not aim to disclose a company’s business results.

Also Read More: Excellent Accounting Research Topics and Ideas

Bookkeeping Process

The process of bookkeeping involves the following steps

• Identifying a financial or monetary transaction
• Keeping track of a monetary or financial transaction
• Making a ledger that accounts for all financial transactions
• Creating a trial balance based on ledger account balances

Difference between Bookkeeping and Accounting

Till now, we have seen what bookkeeping and accounting means. Here, let us look at the difference between bookkeeping and Accounting.

• Bookkeeping is only concerned with recognizing and recording financial transactions. On the other hand, accounting focuses on summarizing, interpreting, and communicating an organization’s financial data.
• The goal of bookkeeping is to keep accurate records of all financial activities whereas the objective of accounting is to assess the financial condition and then communicate that information to the appropriate authorities.
• Bookkeeping is considered as the foundation of accounting whereas accounting is a subset of finance.
• Since bookkeeping simply pertains to the management of books, management cannot make decisions based on it. On the other hand, management can make critical business decisions with the aid of accounting because it is in charge of communicating the information.
• Bookkeeping will only record the information by do not analyze it. But, in accounting, analysis can be done to get crucial business information.
• Bookkeeping does not require particular expertise or skill to record transactions. On the other hand, due to its analytical nature, accounting calls for specialized knowledge and skills.
• Since bookkeeping is primarily concerned with recording, it does not reveal the financial status of a company. But, accounting displays a business’s net outcomes, including its assets, liabilities, and profit.
• Bookkeeping adheres to accounting concepts and conventions whereas accounting firms use different approaches for interpreting and reporting transactions.
• Bookkeeping is limited to clerical tasks at a basic level. On the other hand, accounting is concerned with management at all levels, from the lowest to the highest.
• The job of an Accountant is not supervised by the Bookkeeper. An Accountant is in charge of managing and checking the work done by a Bookkeeper.

Comparison Table: Difference between Bookkeeping and Accounting

For your easy understanding, below we have shared a comparison table of bookkeeping vs. Accounting. Check the table to learn the difference between bookkeeping and accounting.

Also Read More: Learn About The 16 Pertinent Uses Of Accounting

Conclusion

Hopefully, by now you will have understood the difference between bookkeeping and accounting. If you are a student pursuing a degree in finance or accountancy, then knowing the differences between bookkeeping and accounting is essential because knowledge of such concepts might be useful for you in preparing your assignments. In case, you have any doubts about bookkeeping and accounting, contact us.