Explanation of Difference Between the Terms Bookkeeping and Accounting for Free on Vedantu
Bookkeeping is an essential part of all financial transactions. Regular updates of financial transitions taking place in a business, company or even household is quite essential to keep an idea about the expenses, loss and profits on a day-to-day basis. This helps to plan your future financial transactions accordingly. This updated record of transactions gives a clear idea about the performance and progress of a company or business and can determine the future plan of action for improvement. This is also essential for tax audit at the end of the financial year. Accounting is related to bookkeeping in the fact that they both are related to reporting of financial transactions but accounting has the capability of giving a whole idea about the financial health of the business or company whose book keeping has been done. They both are in fact interdependent on each other. Separately appointing a bookkeeper and an accountant is also necessary in big companies to get a better and clear insight about the financial condition of a company or business. This helps in implementing proper measures to increase the revenue generation and better profit of the company or business.
On that note, both bookkeeping and accountancy are vital for a business firm and play an important role in financial management. Though it may appear to be the same for some individuals, both practices follow a different set of rules and benefit an organisation in different ways.
That being said, let’s now move on to find out what exactly is booking and accounting, their purpose and difference between bookkeeping and accounting. While at it, we will also make our way to find out points which set them apart from one another. In this blog we will cover the difference between bookkeeping and accounting and for more co
What is Bookkeeping?
Bookkeeping can be defined as a process of recording everyday financial transactions of an organisation. To practice bookkeeping effectively, individuals need to follow the fundamental concepts and conventions of accounting.
Bookkeeping Can be Divided into Two Types –
Single-entry Bookkeeping
Double-entry Bookkeeping
It is primarily responsible for recording financial transactions which in turn serve as a basis for accounting. Hence, bookkeeping can be credited as an integral component for building a financially sound business venture.
Process of Bookkeeping
The composition of bookkeeping serves as an essential point of difference between bookkeeping and accounting.
Let’s check out these pointers below to find out which processes are involved in bookkeeping.
Identifying and recording financial transactions.
Posting all debits and credits of a venture accurately.
Creating invoices.
Preparing and maintaining general ledger accounts.
Preparing and managing trial balances.
Test Your Knowledge:
What is a bookkeeping journal? Choose the most suitable option from these –
Bank documents
Personal diary
Books of original entry
Now that we have gained a fair idea about bookkeeping let’s move on to find more about accounting.
What is Accounting?
One can simply define accounting as a process that helps firm owners to record, categorise, summarise and even analyse financial transactions of their venture. It uses the information compiled during bookkeeping for preparing various financial reports, which, in turn, prove effective in determining a number of things.
Generally, accounting can be divided into these types –
Financial accounting
tax accounting
Internal auditing
Management accounting
Other than these, public accounting, government accounting, etc. form a part of accounting. Notably, as a concept, accounting is broader than bookkeeping and is undoubtedly a point of difference between bookkeeping and accounting.
It not just comes in handy for business owners but also helps stakeholders and investors to gauge the financial standing of an organisation at any given point of time.
Process of Accounting
Go through these following pointers to distinguish between bookkeeping and accounting more accurately –
Recording adjusting entries.
Formulating and analysing financial statements.
Preparing ledger accounts and trial balance.
Assessing operational cost.
Completing tax returns.
Weighing the impact of decisions pertaining to finances.
Therefore, accounting plays a crucial role in every business, regardless of its size or scale of operations. With that said, let’s take a quick look at the key differences between accounting and bookkeeping.
Here some of the major difference between bookkeeping and accountancy in tabular form
Difference Between Bookkeeping and Accounting in Tabular Form
Understanding the difference between bookkeeping and accounting will help you to manage the financial records efficiently.
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FAQs on Bookkeeping vs. Accounting: Key Differences
1. What is Bookkeeping?
Bookkeeping is the process of maintaining a book to record all financial transactions and events of a firm. It helps businesses to identify and keep track of all financial transactions of a firm systematically and serves as a base for accounting.
2. What is Accounting?
Accounting is a process which records, classifies, summarises and interprets information pertaining to a firm’s financial transactions. It comes in handy for analysing financial data of a firm and in turn, helps to gauge its financial performance.
3. What are the actual differences between Bookkeeping and Accounting?
Bookkeeping and accounting apparently seems to be the same with just two names of financial transaction reporting. However if deeply analysed it can be concluded that they differ from each other in not only on basic objectives but also as decision makers and the required education. Bookkeeping does the work of recording and measuring all financial information of a firm but accounting deals with summarizing the information collected from bookkeeping and communicating them in a way that will make it easy to make decisions regarding the improvement of the financial health of the firm. Thus the ultimate decision making responsibility is based on accounting. Bookkeeping is not a very skilled job. Anyone, even a housewife, can keep the record of financial transactions in the form of bookkeeping but only a skilled person can be an accountant. An accountant needs formal training and qualification for the job.
4. What are the recent updates taken in bookkeeping and accounting?
Bookkeeping and accounting both have transformed massively in the last few years.The latest technology of the software industry along with Artificial intelligence has now become the backbone of digital accounting. Bookkeeping and accounting have become more accurate and almost free from errors. The software updates automatically, making the process much faster than it used to be. There is no longer a need for the challenging task of manually recording and storing financial transactions. In fact, bookkeepers now have more time to focus on their customers, as computer software has simplified their work.
5. What are the methods of bookkeeping?
Bookkeeping can be of different types depending upon the volume of the financial transactions and the vastness of the business. It depends also on the amount of revenue earned in the business or the company. The types of bookkeeping are as follows:
Single entry bookkeeping is suited for small firms and companies who deal small amounts of money that too not in credit form. This involves single entries regarding revenue and expenses that are coming and going respectively.
Double entry bookkeeping is for large business or public companies who usually buys or sells on credit. They are called double entry since in this entry two accounts that are affected come in the picture.
Cash based and accrual based bookkeeping depending upon whether the revenue is received in cash or revenue is earned.
6. What are the steps of accounting?
Accounting starts with the information acquired from bookkeeping. Summarizing the information regarding the financial transactions acquired through bookkeeping and then interpreting them is what accounting actually does. The accounting job involves the following stepwise work:
First step is to identify the nature of the financial transaction
Based on the information collected the ledger accounts are prepared.
A trial balance preparation.
The financial transactions are summarized in the form of statements.
The analysis and interpretation of the financial statements prepared.
7. What are the objectives of bookkeeping?
Bookkeeping is often underrated in terms of its effort. However it has to be remembered that without bookkeeping accounting can not function. Basically bookkeeping is a clerical work but of great importance since it ensures the following jobs to be done under it.
Proper recording of financial transactions of any sort.
It actually shows the impact of all financial transactions of the company or business thus determining the correct status of the business.
It can detect any kind of error or mistakes done in accounting based on its systematic recording of transactions.
8. Why is bookkeeping important for businesses?
Bookkeeping is crucial because it provides the foundational records for all financial transactions. These records help business owners track income and expenses, ensuring that they remain organized and compliant with tax regulations. Accurate bookkeeping allows businesses to maintain financial transparency, detect errors early, and make informed financial decisions.
9. Can small businesses manage bookkeeping and accounting on their own?
Small businesses can manage both bookkeeping and accounting on their own, especially if they’re using accounting software or tools designed for small businesses. However, as the business grows, it may be beneficial to hire professionals or outsource these tasks to ensure accuracy, reduce errors, and allow business owners to focus on core operations.
10. How does technology impact bookkeeping and accounting?
Technology has significantly transformed both bookkeeping and accounting. With advanced accounting software and AI, businesses can automate many tasks, such as transaction recording, report generation, and financial analysis. This has reduced the likelihood of human error, sped up processes, and made financial management more efficient, allowing professionals to focus on strategic decision-making rather than routine tasks.
