What is the 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 systematic recording and classification of financial transactions of an organisation.

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 systematic process of recording, measuring and communicating information about the financial transaction taking place in a business. Accounting helps in determining the financial position of a firm and present the same to 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:

Bookkeeping Accounting
Definition
Bookkeeping deals with identifying and recording financial transactions only Accounting refers to the process of summarising, interpreting and communicating the financial data of an organisation.
Decision making
Data provided by bookkeeping is not sufficient for decision making Management can take important decisions based on the data obtained from accounting
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 analyses the data and creates insights for the business
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 analysing 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.

 

 

2 Comments

  1. 👌👌👌 satisfied with this answer

  2. Very much impressed with the answer👍👍

Leave a Comment

Your Mobile number and Email id will not be published. Required fields are marked *

*

*