Difference Between Bookkeeping and Accounting

In financial parlance, the terms bookkeeping and accounting are almost used interchangeably. However, these concepts are different. While bookkeeping is all about recording of financial transactions, accounting deals with the interpretation, analysis, classification, reporting and summarization of the financial data of a business.

What is Bookkeeping?

Bookkeeping is the process of recording, storing and retrieving of financial transactions of a business on a day-to-day basis.

Bookkeeping is said to be the basis of accounting, whereas accounting forms a part of the broader scope in finance.

The most important focus of bookkeeping is to maintain an accurate record of all the monetary transactions of a business. Companies use this information to take major investment decisions.

The bookkeeper maintains bookkeeping records. Accurate bookkeeping is critical for business as it gives a piece of reliable information on the performance of a company.

Bookkeeping process consists of the following steps:

  1. Identifying a financial transaction
  2. Recording a financial transaction
  3. Preparing a ledger account
  4. Preparing trial balance

What is Accounting?

Accounting is the process of recording, analyzing, summarizing and reporting of data of financial transactions of a business. Accounting helps determine the financial position of a firm to the investors and stakeholders.

It helps a business in the short and long term decision making and also conveys the credibility of a company to the market.

It is also known as the language of business.

The purpose of accounting is to provide a clear view of financial statements to its users, which includes investors, creditors, employees, and government.

Let us look at the most important points of difference between bookkeeping and accounting in the following table:

Basis of Comparison Bookkeeping Accounting
Definition Bookkeeping deals with identifying and recording financial transactions only Accounting refers to the process of summarizing, interpreting and communicating the financial data of an organisation.
Basis of Accounting It is the basis of accounting It is the language of business
Preparation of Financial Statement Not done in the case of bookkeeping Financial statements are a part of the accounting process
Analysis No analysis is required in the bookkeeping Accounting analyzes the data and creates insights for the business
Tools It involves journals and ledgers It involves balance sheet, profit & loss account, cash flow statement
Persons Involved The person concerned with bookkeeping is known as a bookkeeper The person concerned with accounting is known as an accountant
Determining Financial Position Bookkeeping does not show the financial position of a business Accounting helps in showing a clear picture of the financial position of a business
Level of Learning No high-level learning required High-level learning required for understanding and analyzing accounting concepts

This article will help the students of Commerce in developing an understanding of the differences between bookkeeping and accounting. Stay tuned to BYJU’S for more such interesting concepts.