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:
- Identifying a financial transaction
- Recording a financial transaction
- Preparing a ledger account
- 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 deals with identifying and recording financial transactions only||Accounting refers to the process of summarising, interpreting and communicating the financial data of an organisation.|
|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|
|No analysis is required in the bookkeeping||Accounting analyses the data and creates insights for the business|
|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.
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