Many times bookkeeping and accounting are used interchangeably. These two terms often appear inseparable but there is a thin line than distinguishes bookkeeping and accounting. Bookkeeping is part of accounting, and accounting has a broader scope than bookkeeping.
In the simplest of terms of their application, bookkeeping is responsible for the recording of financial transactions whereas accounting is responsible for interpreting, classifying, analyzing, reporting, and summarizing the financial data.
BookKeeping
Book keeping refers to the process of record keeping your business’s financial transactions such as sales and expense on a daily basis. This involves summarizing and organizing all the business financial transactions chronologically in a systematic manner.
Maintaining a general ledger is one of the main components of bookkeeping. This is by definition a basic document one records the amounts from sale and expense receipts. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper. The more sales that are completed, the more often the ledger is posted.
The accuracy of bookkeeping determines the accuracy of the accounting process followed by a business. The complexity of a bookkeeping system often depends on the size of the business and the number of transactions completed daily, weekly, and monthly.
Bookkeepers aren’t required to have any formal education. Bookkeeping can be done without a degree. However, to be successful in bookkeeping one needs to be accurate and knowledgeable about key financial topics. Don’t worry you can begin here.
Accounting
Accounting is responsible for interpreting, classifying, analyzing, reporting, and summarizing the financial data which is a key part of the accounting process is analyzing financial reports to help you make business decisions. Accounting turns the information from the general ledger into insights that reveal the bigger picture of the business and how it is progressing on. Business owners will often look to accountants for help regarding strategic tax planning, analyzing their business’s financial position, forecasting and tax filing.
The accountant maintains and compiles the records of a business’s daily transactions into financial statements such as the income statement, statement of cash flows and balance sheet.
The financial statements prepared in accounting are a precise summary of financial transactions over an accounting period.
Accountants are eligible to acquire additional professional certifications. For example, accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA) a certification that’s offered with levels to it.
Key Differences between Bookkeeping and Accounting.
| BookKeeping | Accounting |
| Definition | |
|
Book keeping refers to the process of record keeping your business’s financial transactions such as sales and expense on a daily basis. This involves summarizing and organizing all the business financial transactions dated in a systematic manner. |
Accounting is responsible for interpreting, classifying, analyzing, reporting, and summarizing the financial data which is a key part of the accounting process is analyzing financial reports to help you make business decisions. |
| Scope | |
| Bookkeeping is one segment of the whole accounting system. | The accuracy of bookkeeping determines the accuracy of the accounting process followed by a business. Accounting starts where the bookkeeping ends |
| Objective | |
| When it comes to bookkeeping, the objective is to keep the records of all financial transactions proper and systematic | While in accounting the objective is to be able to gauge the financial situation of a business and further communicate the information to the relevant authorities. |
| Purpose | |
| The purpose of bookkeeping is to maintain a systematic record of financial activities and transactions chronologically. | The purpose of accounting is to report the financial strength and obtain the results of the operating activity of a business. |
| Title | |
| The person responsible for bookkeeping is called a bookkeeper. Which in the beginning can be the business owner posting the sale/expense transactions. | The person responsible for accounting is called an accountant. |
| Skill Set | |
| Bookkeeping doesn’t require any special skill sets. |
Accounting requires special skills due to its analytical and complex nature. Title of Certified Public Accountant (CPA) a certification that’s offered with levels to it. |
In Summary
Bookkeepers and accountants sometimes do the same work, but have a different skill set. In general, a bookkeeper’s role is to record transactions and keep you financially organized on a daily bases, while accountants provide consultation, analysis, and are more qualified to advise on tax matters.
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