For every business organization bookkeeping and accounting both are important aspects. To simply put, bookkeeping means keeping a record of all financial transactions, and accounting includes interpreting, classification, analyzing, reporting, and summing up the financial data.
If you are unfamiliar with both terms, then maybe bookkeeping and accounting seem the same. Because both aspects deal with financial data, needs basic knowledge of accounting, classification, and report generation by using financial transactions. But at a specific point, both aspects follow different processes and carry their own benefits.
Overview of Bookkeeping
As the name implies, bookkeeping helps to maintain a record of financial transactions. It gives you a view of your business, so you can see all transactions from and in your account. Bookkeeping experts record the transactions and summarize the data to create a report. The responsibility of bookkeepers is to record financial transactions sequentially regularly.
Common bookkeeping tasks:
- Managing pay-roll system.
- Maintaining record for income from expenses and services like utilities, rent, and office supplies.
- Comparison between your balance in book and bank transactions to see whether they match or not. If they don’t match, then they need adjustment and create a bank reconciliation statement to keeping a record of these discrepancies.
- Keeping an eye on money transferred from your account and to your account.
- Account book requires maintaining financial transactions.
Benefits of Bookkeeping
The following are some advantages of bookkeeping:
- A bookkeeper is responsible to maintain an up-to-date detailed record. This detailed information will help you in supervising your business accounts.
- With the help of detailed recording and overview of the business’s accounts, you can easily predict your future.
- You’ll have an updated balance sheet, so you can inquire about the current state of your business.
- With proper and detailed recording information can boost confidence and help you to more improve your business relationship with your shareholders and investors.
- With real-time information on your account, you are more likely to react quickly to the changes that occur in the market.
Overview of Accounting
Basically, an accountant makes use of recorded data to understand, analyze and report on the financial health of the organization. Generally, they provide a detailed view that helps in business decisions. Accountant not only records income and expenses but also helps in decision making.
Common accounting tasks may include:
- Preparation of financial statement to measure the financial condition of the business, including:
- Balance sheet: Your financial situation by calculating Assets=Equity-Liabilities.
- Cash flow statement: The record of all financial transactions including, flow in and flow out.
- Income statement: Keeping a record of income and expenses over time.
- Analysis of journals and account book entries, making adjustments and recognizing incur expenses that have not been recorded.
- Providing tax suggestion, completing and filing tax returns.
- Providing financial suggestions and helping understand the results of your financial decisions.
Benefits of Accounting
- With the help of accounting, management can take accurate decisions in order to increase sales, and deducting the cost.
- With accounting, an accurate picture can be viewed on the balance sheet.
Similarities between Bookkeeping and Accounting
Most people consider both terms bookkeeping and accounting the same because they work with financial data. But, both roles have different responsibilities but rarely overlap. Now, let’s discuss what the similarities between accounting and bookkeeping are:
- Bookkeeping and Accounting manage the financial data of the business.
- Both work to improve the financial condition of the company.
- Bookkeeping and Accountingneed to have basic knowledge of accounting.
- In small business, roles can overlap.
- They don’t need to participate in strategic financial planning (in startup business).
- Accountants can perform the role of a bookkeeper if the bookkeeper is not available.
- Bookkeeping complement accounting, if bookkeeping is done accurately.
Differences between Bookkeeping and Accounting
The following table will show the differences between bookkeeping and accounting:
|Definition||The process of keeping a record of financial data.||The process of interpreting, analyzing, and reporting on the financial health of an organization/business.|
|Business decision making||Depending on the data provided by the bookkeeper, the management can’t make decisions.||Management can take a decision, depending on the data provided by an accountant.|
|Purpose||The purpose of bookkeeping is to maintain the record of the financial transactions.||The purpose of accounting is to assess the financial condition and communicate to the higher authority.|
|Financial statement preparation||Preparation of financial statements is not part of the bookkeeping process.||The accounting process includes financial statement preparation.|
|Analysis||The bookkeeping process doesn’t require any analysis.||Accounting utilizes bookkeeping information to analyze and understand the data that helps in reporting.|
|Skills needed||In the bookkeeping process, no specific skills required.||For analyzing and interpreting purposes, accounting requires skills.|
Bookkeeping is the initial stage of accounting that makes both inseparable. If you have done bookkeeping properly, then it will complement accounting and vice-versa. As bookkeeping includes a clerical task, that is why a basic knowledge of commerce is required. If you are looking for Bookkeeping Service For Small businesses or large Businesses, then you can reach Reliable Bookkeeping Services to get reliable services.