The terms accounting and bookkeeping can be confusing sometimes. Do they mean the same thing? Although both professions deal with numbers, accounting and bookkeeping are different from each other.
Bookkeeping refers to accumulating, organizing, storing, and accessing the financial information base of an entity, which is needed for two primary purposes: facilitating the day-to-day operations of the entity and preparing financial statements, tax returns, and internal reports to managers. Accounting, on the other hand, is much broader. Accounting encompasses the problems in measuring the financial effects of economic activity. It includes the function of financial reporting of values and performance measures to those that need information such as business managers and investors. In short, bookkeepers record all financial transactions while accountants summarise, analyze, and interpret these records.
Let’s take a look at the different functions of bookkeeping and accounting.
The process of bookkeeping is mainly mechanical and relies only on the recording of the information. In the past, the records were kept in a book, but now, the books were replaced with modern bookkeeping software, which runs on personal computers. This kind of software is very sophisticated, and it can tremendously help the job of the bookkeeper. The process of bookkeeping consists of the recording of the incoming transactions (received payments in the form of money or cheques from customers, etc.) and the recording of the outgoing transactions (paying for specific bills at the correct time, etc.). There are two basic kinds of bookkeeping: single-entry bookkeeping and double-entry bookkeeping.
On the other hand, accounting is the systematic recording of business transactions that also encompasses additional reports and further in-depth financial analysis of the transactions. According to Fin-ex Consulting, an accounting, and bookkeeping company based out of the UK, offering outsourced accounting services for firms and accountants in practice, Accounting also prepares statements, liabilities of the assets, and the various results of the whole business. Accounting uses the bookkeeping information, interprets the data, compiles it into reports, and presents it in the form of reports to the management.
From small companies to large corporations, every business has accounting and bookkeeping staff that manage their finances. In smaller companies, however, they usually hire one person to do both accounting and bookkeeping tasks for their business. They only deal with small transactions compared to large corporations, which typically have a separate large accounting department in their office.
Although both these professions have differences, accounting and bookkeeping have their similarities as well. Both profession work with financial information. To become either an accountant or a bookkeeper, you need to have the necessary accounting skills. You should also know how to familiarize yourself with different financial terms and processes and be knowledgeable in generating financial reports. Lastly, both use the same tools in keeping financial records. There are several online software programs, like Xero, that they can use to perform accounting and bookkeeping tasks.
The next time you encounter these two words, you already know how different accounting is from bookkeeping. To simplify further, accounting is about analyzing financial records while bookkeeping is basically what it is – keeping financial records.