Accounting vs Bookkeeping – The Same Thing or A Whole New Story?
Posted by : Premraj | Posted on : Wednesday, January 24, 2018
DELICIOUS
SU
REDDITOne and the Same Thing?
Most people, when asked to give a definition of either Bookkeeping or Accounting, are likely to use one to explain the other, often interchangeably. This misconception results from the fact that both deal with financial data, require Accounting kowledge, and involve pulling reports about business transactions.
Although extremely important to the operation of any business, the two terms are absolutely not to be confused as one and the same thing. How so, and what exactly sets them apart?
Setting the Boundaries
While bookkeeping refers to the process of recording all dealings and financial transactions that are part of the operation of a business entity, Accounting, on the other hand, is responsible for the analysis and interpretation of these financial transactions.
What this means is, that Bookkeeping is simply a prelude, the first step in the process of Accounting. The latter is much wider in terms of scope, and much more analytical in nature. It cannot however exist without the basis given by the data that is provided in the process of bookkeeping.
A Bookkeeper’s Job
Bookkeeping involves keeping a thorough and systematic track of each and every financial transaction that occurs in an organization. It entails sustaining a full documentation of every single profit and expense of the entity, which would then become involved in the accounting process. Bookkeeping has the sole pupose of paining a truthful picture of the company’s revenue and liability at the end of each accounting period.
It is the bookkeeper’s job to follow the inbound and outbound flow of cash, trace the number and value of goods sold, record any inventory purchased on credit, and establish return on purchase, sales or investment. Check out this article if you would like to further differenciate between a bookkeeper’s and an accountant’s job.
Accounting As a Process
Accounting is the science and tool that determines the financial state of a business by taking a look at the input that bookkeeping provided. It’s a long procedure that starts with the process of transaction recording and ends with financial reports at the end of the year.
As the organization’s monetary transactions are properly identified and recorded, in accounting they are also grouped under various categories. Each and every category then gets summarized and the results are included in separate financial statements that are then carefully and thorougly analyzed in order to interpret the data and reach conclusions which are then delivered to the interested parties.
The purpose of accounting is to paint a truthful picture of the financial aspects of an organization to its investors, managers, employees, creditors, suppliers, government structures and the general public, whoever the interested party might be.
The Major Differences, Outlined
Bookkeeping is engaged the in proper recording of financial dealings and transactions of a business entity. Accounting takes all that data, turns it into a system, and analyzes it in order to draw conclusions.
Bookkeeping is a bookkeeper’s job, whereas accounting is an accountant’s job.
Financial statements are the final product of the accounting process, not the bookkeeping one.
Managerial decisions are made on the basis of accounting data, since decisions are difficult to take at the bookkeeping stage.
Bookkeeping does not provide a full picture of a company’s financial status and profitability. It does, however, provide the data to establish that status and make deductions.
Bookkeeping is a clerical job that requires some knowledge of commerce in order to be able to do it properly. Accounting, on the other hand, requires total expertise of the subject matter at hand.
Bookkeeping is the stepping stone from which all accounting activity begins. This makes each of the two phenomena indispensable to the other, since we cannot really analyze in the absence of data, and data, on the other hand, speaks nothing until taken apart and inspected. The condition going both ways means that bookkeeping success ensures accounting success and vice versa. Both jobs need to be done right in order to portray an accurate image of financial affairs.
