Do you know the difference between bookkeeping and accounting? All too often, people use the term interchangeable due to the assumption that they are the same process. Whilst bookkeeping and accounting may share a few similarities, they are both individual processes that contribute to the management of a company or business’ finances. In today’s article, we have a look at the differences between the two, so read on to find out more!
What Is the Definition of Bookkeeping?
Business bookkeeping is the systematic record keeping of transactions that occur in business. Bookkeeping involves a qualified bookkeeper keeping full documentation of all financial transactions in a bid to disclose an accurate picture of the total income and expenditure of a business. The process of bookkeeping doesn’t require any in-depth analysis, but rather, its objective is to keep a record of transactions as systematically and accurately as possible.
Classically, a bookkeeper does not require any formal training. This is not to say that a bookkeeper’s job isn’t important – they are responsible for the day to day transactions, such as incoming and outgoing cash, goods purchased or sold on credit and expenses incurred. Bookkeepers are to transfer this information in the concerned ledger after they have prepared a trial balance.
What Is the Definition of Accounting?
Accounting is the process of analyzing and interpreting the financial information of an organization. Accountants oversee how data is stored, managed and updated. An accountant is in charge of recording transactions and the reporting of financial statements at the end of the financial year. Accountants are also responsible for properly assessing data and offering financial advice or predictions that will aid a business in growing its financial position.
The main purpose of accounting is to provide a transparent and true view of financial statements so that creditors, investors, employees and upper management can easily understand them.
What Are the Key Differences Between Bookkeeping and Accounting?
- When it comes to the job of being an accountant, an individual will need formal qualifications that include a degree and relevant work experience. Bookkeepers, on the other hand, will only need qualifications such as a CertIV in accounting and bookkeeping.
- Bookkeeping is the process of keeping accurate records of financial transactions, whilst accounting is the process of analyzing, recording, summarizing and evaluating the prepared data. Thus, bookkeeping is the first step into accounting.
- Accounting records can be used as a base for making managerial decisions, unlike bookkeeping records that may be difficult to base actions on.
- The process of bookkeeping doesn’t require analysis, whilst accountants make use of bookkeeping information to analyze and interpret data.
- Bookkeepers are required to be organized and accurate in their work. Often times, a bookkeeper will be overseen by an accountant. Accountants with sufficient experience on the other hand, can obtain the title of Certified Public Accountant.
- Financial statements are not part of the process of bookkeeping. However, the preparation of financial statements is part of the accounting process.
- Accountants can handle bookkeeping, and do so in certain situations. However, a bookkeeper is not qualified to handle the accounting process.
In conclusion, bookkeeping and accounting are processes that go hand in hand. One cannot exist without the other. An accountant relies on a bookkeeper’s records in order to make accurate financial decisions for the business. Since bookkeeping acts as a base for accounting, it is safe to say that if the bookkeeping records are done properly, the accounting will also be perfect.
We hope that this article has given you some insight into the bookkeeping and accounting process. Both are crucial in running a successful business, and both have an equal part to play in the financial health of an organization or entity.