The difference between bookkeeping and accounting
Technically speaking, the terms Bookkeeping and Accounting are distinct in their scope and definitions.
Bookkeeping involves recording financial transactions, whereas accounting revolves around the interpretation of books.
Accounting also involves the analysis and reporting of financial data generated by a business.
In practice, most people tend to use these terms interchangeably.
A bookkeeper is the one who works at the grassroots level and is responsible for generating records of transactions as and when they happen.
On the other hand, an accountant is a person who delves into the, thus generated, transaction records to derive meaningful insights.
Hence accounting takes care of broader scope of finance.
These insights could be from different perspectives, like taxation, production targets, forecasts, sensitivity, and other analyses.
It is a systematic recording process that organizes the financial transactions of a business.
There is an account for everything. In order to ensure accuracy in the captured data, bookkeepers follow the concept of double-entry accounting.
The practice translates into maintaining a dual parallel record for each and every financial transaction.
Therefore, each credit entry will have a corresponding debit entry in the books of account.
The essence of accurate bookkeeping is precision in capturing the data about financial transactions.
Business decisions rely heavily on past performance data captured through bookkeeping.
Bookkeeping is a straightforward process.
The bookkeeper will recognize the financial transaction and record the relevant details in books.
The next step is to reconcile the recorded data into a ledger account.
Followed by the development of Trial Balance, the basis for the preparation of Financial Statements.
It is a systematic process of measuring and reporting information derived from financial transaction records.
Business leaders rely on accounting reports to make decisions. It is also a way of communicating the business’ performance to external parties like investors and other stakeholders.
Accountants maintain a close liaison with bookkeepers of the business as they seek clarity on the recorded transactions.
Once an understanding is achieved, accountants can go ahead and analyze the financial records.
Importance of Bookkeeping and Accounting for businesses
Bookkeeping is the mainstay for any business.
Hence regardless of business size, bookkeepers always find work with companies.
When a business is small in size, the management may not realize the significance of accounting.
Bookkeepers are required throughout the year to record financial transactions.
Accountants are needed at regular intervals (quarterly, semi-annually, and annually) to compile the records for reporting purposes.
These reports are consumed by the government, investors, creditors, lenders, etc.
As the business grows in size, the scale of financial transactions grows manifold.
Large businesses employ several bookkeepers based at different locations.
The generated records are merged and analyzed to prepare for future growth.
With the advent of technology devices, bookkeeping and accounting are no longer done on physical documents.
Custom devices and software help businesses easily maintain vast financial transaction records.
The financial position of a business can be obtained at any point in time.
In order to run a business efficiently, accurate knowledge of overall finances is of critical importance to the management.
While bookkeepers capture the transaction, accountants help improve efficiency by checking the work done at ground level.
Auditors are the internal or external accountants who act as an added line of defense against inaccuracies in record keeping.
Having both a bookkeeper and an accountant will ascertain business success as you receive advice from different perspectives.
Bookkeeping and accounting complement each other, and both are like the blood and veins of a successful business.
Bookkeeping Lead offers virtual bookkeeping & accounting services to small businesses looking to scale up their business while improving their organization efficiency.
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