In this post, we will have a clear understanding of what is bookkeeping & accounting. To make the topic of Bookkeeping and accounting even easier to understand, we will see the definition of both the terms, the process of it and also the difference between them.
Bookkeeping is the process of recording, storing and retrieving of financial transactions of a business on a day-to-day basis whereas accounting is interpreting, classifying, analyzing, reporting, and summarizing the financial transactions of a business.
Bookkeeping and accounting are two functions which are extremely important for every business organization. In financial jargon, the terms bookkeeping and accounting are almost used in crossing point. However, both these processes are naturally different and have their own sets of benefits. The Bookkeeping is the base for accounting. Accounting begins where the bookkeeping is complete and is thus comprehensive in scope than bookkeeping.
The process involved in Bookkeeping
Bookkeeping is the process of recording daily transactions in a consistent way and is a key component to building a financially successful business.
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Maintaining and balancing subsidiaries, general ledgers.
The process involved in Accounting
Accounting is the next level of process that uses financial information gathered by a bookkeeper and generates financial statement compiled from bookkeeping for decision making and determining the financial position of the business.
- Posting adjusting entries (Recording the expenses happen earlier but missed in Bookkeeping)
- Preparing company financial statements
- Analyzing costs
- Filing statutory returns on time
- Assisting the business owner in understanding the impact of financial decisions.
Types of Bookkeeping System
The two methods commonly used are the single-entry and double-entry bookkeeping systems. While each has its own advantage and disadvantage, the business has to choose the one which is most suitable for their business.
Accounting is an all-important process that drives your business forward and helps you gauge your success. Before we start, we need to decide on which accounting type we are going to use for our business. There are two methods of accounting: cash-based and accrual-based.Types of Accounting
It is the simpler type of accounting the transactions are recorded whenever you receive cash payments from customers, or whenever cash leaves your company in the form of expenses or vendor payments.
The difference between bookkeeping and accounting is as follows:-
- The objective of bookkeeping is to keep the records of all financial transactions in a proper systematic manner whereas the objective of accounting is to evaluate the financial situation and further communicate the business information to the relevant management authorities and to the needed departments.
- Bookkeeping is clerical in nature; it doesn’t require any special skills. It is enough to have junior staff to do this action. Whereas Accounting requires special skills due to its analytical and Complex nature and it is to be done by a person who has knowledge of accounting policies.
- Bookkeeping is done based on accounting concepts and conventions. Whereas, the accounting methods and procedures for analyzing and interpreting the financial reports.
- Bookkeeping is the beginning Process and evolves as a base for accounting whereas accounting process begins where bookkeeping ends.
- Preparations of financial statements are not done in Bookkeeping process whereas preparations of financial statements are part of the accounting process.
- Based on Bookkeeping, management decisions cannot be done whereas in accounting process management decisions are taken based on the financial statement prepared.
- Bookkeeping is the basis of accounting whereas accounting is known as the language of business.
- Bookkeeping completes by posting the entries into respective journals and ledgers whereas accounting completes on preparing balance sheet, profit & loss account, cash flow statement and analyzing it and creating insights into the business.