The terms bookkeeping and accounting are used interchangeably, but there are certain key differences that make the former a first step to the latter. Both these functions have a significant role in any company’s financial statements.
The fact is, bookkeeping and accounting ultimately work together ensuring the success of any business. The success of any organization comes down to how well the financials are recorded.
Bookkeeping is the timely and precise recording of financial transactions while accounting is the analyzing and interpreting the data created by those transactions.
Understanding Bookkeeping
The process of maintaining a complete and systematic record of books for a business is known to lay the foundation for effective accounting. The bookkeeping process is the activity of logging every financial transaction of the business and also includes using a ledger to post the details of any sales, expenditures, and their associated bank transactions, the processing of employee payroll and creation of any customer invoice.
In today’s business environment, there is a certain level of overlap between bookkeeping and accounting thanks to accounting software that makes it easy to generate financial reports. There are two methods of bookkeeping:
- Single Entry system of bookkeeping
- Double Entry system of bookkeeping
Understanding Accounting
Accounting transforms bookkeeping records into an actionable and adaptable business plan. It is a business language which gives an accurate information on the financial status of the organization. Accounting is a complete procedure that begins from recording transactions and ends at reporting financial statements at the end of the financial year.
Simply put, the accounting process is providing a true and fair view of the financial statements to its user in a way that is easy to understand at the end of any financial year. Accounting also makes it possible for a company to prepare key tax and other financial documents. It is the best way to measure a company’s financial growth and success. The main branches of accounting are:
- Financial Accounting
- Cost Accounting
- Management Accounting
- Human Resource Accounting
- Social Responsibility Accounting
Key Differences Between Bookkeeping and Accounting
- Maintaining proper records of the financial transactions of a business is bookkeeping. On the other hand, accounting is recording, analyzing, evaluating and reporting financial transactions of a business.
- Financial statements are not a part of the bookkeeping process, but of the accounting process.
- Bookkeeping is the beginning of the accounting process.
- A bookkeeper performs bookkeeping activities, whereas an accountant performs accounting activities.
- The management of a business cannot make any decisions with bookkeeping records, but can take critical business decisions depending on the data provided by accountants.
Both bookkeeping and accounting functions go hand in hand. If you do not have a proper bookkeeper then your records for the financial statement of a year will not be in order. Hence, you can say that bookkeeping is an indivisible part of accounting.
If you’re interested in hiring any bookkeeping and accounting services, or just looking for more information on the same, feel free to get in touch with our experts today.
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