Bookkeeping and accounting are the two critical aspects of any venture. Bookkeeping and accounting keep track of all the financial data of the company that helps in the smooth function of a company. Both bookkeeping and accounting need basic accounting and economics knowledge. The 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.
Bookkeeping vs Accounting
The main difference between bookkeeping and accounting is that bookkeeping keeps a record of all the financial records, whereas accounting interprets, analyzes, and summarizes the financial records. Bookkeeping is used merely to keep or record the financial data; no decisions are taken by the records of bookkeeping by the management.
The financial reports that are produced due to accounting are taken into consideration while making any decision that affects the finance of the company.
Comparison Table Between Bookkeeping and Accounting (in Tabular Form)
| Parameter of Comparison | Bookkeeping | Accounting |
|---|---|---|
| Definition | Bookkeeping is related to the recording, measuring, and identifying the financial data of a company. | 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 special skill set to handle and manage the financial records. | An accountant needs special skills to record, interpret, and analyze the financial data to prepare reports. |
| Analysis | No analysis is carried. | 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 on a daily basis. | The accountant prepares the financial summary at the end of the month or on a yearly basis, depending on the type of report and demands of the company. |
What is Bookkeeping?
Bookkeeping is the process of recording financial data of a company on a regular basis.
The financial data includes sales, purchase, receipts, etc. of an individual or of 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 important for all external financial sources like investors, financial institutes, and government.
Before an investor makes a decision to invest in a company, he will check the financial records of the company maintained in bookkeeping.
A bookkeeper is always supervised by the accountant, and at times, they 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 major types of bookkeeping.
There is double-entry bookkeeping and then, there is single-entry bookkeeping. In the latter type, there is the only 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 of the same.
All financial decisions are taken by management only after going through the reports of the accounting.
The management even approaches higher authorities if the reports spot the financial transactions to be more different than the normally expected transactions.
The professional accountants take out the gist of the data pertaining to 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 future investments of the company.
Main Differences Between Bookkeeping and Accounting
Conclusion
Bookkeeping and accounting are both important for a company. They both help the company maintain its finances and help in making better financial decisions.
The bookkeeping records are used by accountants to make a report for the financial summary. Both of them go hand in hand, yet their uses and functions are different.
References
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