Accounting and bookkeeping are inseparable, but there is a thin line separating them; accounting has a wider scope than bookkeeping, and bookkeeping is part of accounting. Every business must have an accounting and bookkeeping process to prepare the financial records at the end of a year or quarter. Additionally, bookkeeping and accounting assist the business in assessing its value and making decisions for the future.
In this blog, we will understand in detail the difference between bookkeeping and accounting.
What is Bookkeeping?
Bookkeeping is the practice of keeping track of and documenting every financial transaction in a company’s original books of entries. All of the company’s financial transactions are compiled and arranged chronologically and methodically as part of the bookkeeping process.
A business’s daily financial transactions and activities are the main focus of bookkeeping. The bookkeepers keep the books of accounts up to date and document them. Tax payments, sales revenue, loans, interest income, payroll, other operating costs, investments, and other financial transactions are all documented in the original books of accounts.
Since they serve as the foundation for accounting, the books of accounts must be accurate. The accuracy of a company’s accounting procedure is based on how accurately its books are kept.
Features of Bookkeeping
Record Financial Transactions
Systematically recording financial transactions is one of the most crucial aspects. There are numerous approaches to bookkeeping. The double-entry and single-entry record-keeping systems are the most widely used. There are two kinds of keeping records. Every business transaction is documented in a book known as the Journal. The ledger account balances are extracted by posting these recorded transactions to the ledger and balancing them. To show these ledger account balances, a trial balance has been developed. Trial Balance is used to create financial statements that show a company’s financial performance and condition.
Maintaining Journal & Ledger
Maintaining the books of accounts, including the journals, ledgers, and subsidiary books, is the second most crucial aspect. This are the primary task that entails keeping the books of accounts safe, up to date, and stored in order to prepare and present financial statements and finish the audit.
Classifying Income, expense, asset & liabilities
Classifying the accounts as expenses, incomes, liabilities, assets, and equity capital is a crucial feature. Every transaction has two effects: a credit and a debit. These are categorised in accordance with the double-entry system’s guidelines. As a result, every account could either be a liability or an asset for the company.
Prevention of Frauds
To keep the books of accounts accurate, it is crucial to stop and identify frauds and mistakes. Principal errors, clerical errors, errors of commission, and errors of omission can all be identified with its assistance. As a result, passing correcting entries aids in fixing such mistakes.
Process of Payroll Accounting
One of bookkeeping’s features is that the bookkeeper also completes the payroll accounting process, which is an essential step that helps in finishing the payroll work.
What is Accounting?
The process of analysing, summarising, reporting, and evaluating a company’s financial transactions is known as accounting. An accurate summary of financial transactions throughout an accounting period can be found in the financial statements that are prepared in accounting. The operations, cash flows, and financial status of a business are summed up in these statements.
Accounting compiles financial data so that all parties involved can easily comprehend and use it. It facilitates the timely and accurate maintenance of financial records by businesses.
A company’s daily transaction records are kept up to date and compiled by the accountant into financial statements like the balance sheet, cash flow statement, and income statement. All stakeholders use the financial statements to evaluate a company’s success.
Features of Accounting
Recording Financial Transactions
Accounting keeps a systematic record of every business’s financial transaction. This procedure guarantees that all financial data is accessible for reference and that no transaction is missed. Financial statements, ledgers, and diaries all contain records of transactions.
Classification and Summarization
A variety of accounts, including assets, liabilities, revenue, and expenses, are used to classify transactions. They are compiled into financial statements such as the cash flow statement, balance sheet, and income statement after categorisation.
Measurement of Financial Performance
Accounting makes it easier for companies to monitor their financial performance over time. It makes it possible to compute revenue, expenses, profit, and loss. Businesses can evaluate their growth and profitability with the use of this function.
Compliance with Legal Requirements
Accounting makes sure that companies abide by tax laws, financial regulations, and accounting standards like GAAP or IFRS. Transparency is ensured and legal fines are avoided with compliance.
Double-entry system
A debit is made to one account and a credit is made to the other in every financial transaction. This technique guards against mistakes and guarantees accuracy in financial records.
Differences between Bookkeeping and Accounting
Bookkeeping is mostly an administrative duty, whereas accounting calls for reasoning and problem- solving. This is the primary distinction between the two types of work. Additional differences between bookkeepers and accountants are outlined below.
Scope
The daily financial records of the company should be kept in good condition by bookkeepers. The financial records of the company should be examined by accountants in order to find problems and chances for performance improvement.
Roles and responsibilities
A regular administrative task are bookkeeping. It sets up your company’s accounts for more complicated activities and is the initial stage in the comprehensive accounting process. The task of accounting might be completed on a weekly, monthly, or quarterly basis. It is a methodical, subjective examination of your data that can assess the general health of your company.
Skill Level
All day long, bookkeepers and accountants deal with figures and financial information. Therefore, applicants who dislike arithmetic, find it difficult to understand even basic computations, or who are just against crunching numbers should not opt for bookkeeping and accounting career.
You need to have almost superhuman attention to detail to work as a bookkeeper. Ignorant errors that don’t seem serious at first can later cause more serious, expensive, and time-consuming issues. You have to have multitasking skills. A bookkeeper’s usual workday consists of juggling five or six smaller assignments rather than working on one large project for eight hours. Since computerised accounting software and applications are used for almost all bookkeeping, bookkeepers should be at least somewhat conversant with current technology.
As an accountant, you have to be meticulous with numbers and financial minutiae, but you also need to be smart with logic and able to solve problems in the big picture. Accountants use the minor components that bookkeepers make sure fit perfectly to reach far larger and more meaningful conclusions about a company’s finances.
How Bookkeeping and Accounting Works Together?
To maintain a company’s financial stability, bookkeeping and accounting are closely related tasks. Accounting analyses and interprets financial data by building upon bookkeeping, which serves as its foundation. This is how they enhance one another:
Bookkeeping: The Foundation of Accounting
In bookkeeping, daily financial transactions like sales, purchases, receipts, and payments are documented. It guarantees that every piece of financial information is methodically entered into ledgers and diaries. By assigning the proper accounts to transactions, bookkeepers ensure that financial records are accurate.
Accounting: The Analysis of Financial Data
Bookkeepers record data, which accountants then use to create financial statements. To evaluate the financial health and commercial success, they examine the data. Budgeting, financial planning, tax filing, and legal compliance are all aided by accounting.
Example of How They Work Together
A bookkeeper keeps a ledger of a company’s daily sales and expenditures.
An accountant uses the information at the end of each month to create financial statements and assess profitability. Using that analysis, the accountant might recommend ways to reduce expenses or save taxes.
Which one is Right for your business?
After reading the above information about the difference between bookkeeping and accounting you might think, which service will be ideal for your business. Bookkeeping and accounting are distinct services, yet so similar in nature. Asking yourself a few questions will help you decide whether you need a bookkeeper or an accountant.
Your focus is on long-term goal or short-term goal?
If we compare between bookkeeping and accounting, accounting is the long-term planning, documentation, and reporting of earnings and outlays. It provides the financial basis for your company that you require in order to formulate a long-term plan. However, laying this foundation requires first completing the task of bookkeeping.
In addition to keeping track of your financial data for future use, it enables you to handle urgent business requirements. You will most likely require an accountant if you want assistance creating a long-term strategy and company plan. You will most likely require a bookkeeper if you wish to monitor your earnings and outlays and examine your records to help you make better judgments down the road.
Do you want to focus on income or expenses?
Accounting services frequently concentrate on the net profit and cash flow of a company, whereas bookkeeping mostly deals with revenue and expenses. In order to ensure that you’re making prudent financial decisions, you will employ your bookkeeping services if your company’s revenue is little. Your accountant will become more important as your company expands and your income rises to ensure that you’re maximising your profit.
You are looking for one-time service or an on-going support?
Generally, accounting services are provided on a long-term basis, contingent upon your company’s need. On the other hand, bookkeeping is utilised for immediate financial management. Not only can an accountant assist your company with long-term planning, but they can also provide bookkeeping services if necessary.
Is your cash flow positive or negative?
An accountant is required to review your company’s financial statements and determine whether it has positive cash flow. If you have a negative cash flow and need to monitor your spending, bookkeeping is crucial since it helps you preserve accurate financial records and data.
Conclusion
It is evident that bookkeeping and accounting services are distinct financial offerings tailored to meet distinct corporate requirements. Bookkeeping is the most effective method to keep correct financial records if you must. The use of accounting services is recommended if you wish to make well-informed business judgments. It’s not necessary to choose between them; they’re both vital. To make sure your company is prepared for everything, you can have both bookkeeping and accounting services.
CoxHinkins support SMEs with reliable bookkeeping and accounting services. We have well-experienced accountants and bookkeepers who can assist you to maintain accurate records. We also use various accounting software which makes task easier and quick. If you are in search of bookkeeping and accounting services reach out to us. Our team will assist your queries in the best possible way.
Disclaimer: Kindly note this blog provides general information and should not be considered financial advice. We recommend consulting a qualified financial advisor for personalised guidance. We are not responsible for any actions taken based on this content.
