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The terms accounting and bookkeeping are almost always used interchangeably in financial contexts. These ideas, though, are distinct. While accounting emphasizes the classification, analysis, interpretation, summarizing, and reporting of the organization’s financial data, bookkeeping revolves around the recording and documenting these financial transactions.
In this article, you’ll learn every key difference between bookkeeping and accounting there is to know. So, let’s start.
What is the Difference Between the Roles of Bookkeeper vs. Accountant?
Below is the Difference Between the Roles of Bookkeeper vs. Accountant:
| Areas | Accounting | Bookkeeping |
|---|---|---|
| Definition | Accounting is the financial procedure involving the computation, summarizing, interpretation, and communication of all the organization’s financial data. | Bookkeeping is the financial practice of identifying and documenting all the financial transactions happening within an organization. |
| Decision-Making | The data and outputs derived from accounting help the organization’s management make crucial business decisions. | Data derived from an organization’s bookkeeping department is insufficient to make any business decision. |
| Preparation of Financial Statements | Preparing financial statements is not only a part but a major segment of the entire accounting procedure. | When it comes to bookkeeping, bookkeepers won’t have to prepare any financial statements. They only need to focus on recording the financial transactions to help the accountants prepare such statements. |
| Financial Position | An accountant's primary duty is to help the organization understand its current and previous financial standing. | Bookkeepers never have to worry about determining and showing the business's financial position to its management. |
| Persons Involved | The person involved and associated with the whole accounting procedure is called an accountant. | The person involved in bookkeeping and responsible for recording all financial transactions is called a bookkeeper. |
| Analysis | An accountant is key in analyzing financial data and preparing business insights accordingly. | A bookkeeper never has to perform any financial data analysis as it isn’t a part of their job role. |
| Level of Learning | An individual requires a ‘next-level’ understanding and knowledge of accounting concepts. | Doesn’t involve any high level of learning as anyone can learn bookkeeping with some basic concepts. |
Learn More: Financial Accounting vs Management Accounting!
What is Bookkeeping?
Bookkeeping is managing and documenting/recording every financial transaction within an organization's initial books of entry. This process entails systematically summarizing and categorizing all of the business's financial transactions chronologically.
Keeping a record of an organization’s daily financial operations and transactions is the ultimate purpose of bookkeeping.
The bookkeeper records the accounts' books and keeps them up-to-date. The original book of accounts records all financial transactions, including tax payments, sales revenue, interest income, loans, wages, and other operational costs, investments, etc.
The Function of Bookkeeping
Bookkeeping, the process of recording and maintaining daily business transactions, has become a crucial business need to stay updated with their financial data for later uses (preparation of financial statements).
Here’s what bookkeeping entails:
- Journal posting of debits and credits
- Recording every financial transaction
- Finishing payroll
- Maintaining and balancing general ledgers, subsidiaries, and historical accounts
- Preparing and producing invoices
What is Accounting?
Interpreting, analyzing, summarizing, and reporting a business's financial transactions is the process of accounting. Accounting financial statements accurately describe all financial transactions within an accounting period.
These are overall summaries of an organization’s cash flows, financial standing, and operations. Accounting integrates all financial data to make business decisions while ensuring everything is clear and understandable to all parties involved within the organization.
It helps in the timely and accurate maintenance of financial records. The accountant's role is to keep track of the daily business transactions and compute them into financial statements like cash flow statements or balance sheets.
The financial statements help stakeholders understand the current company performance, financial standing, and future earning potential.
The Function of Accounting
Accounting is a cutting-edge procedure that creates financial models using financial data from a bookkeeper or business owner. Accounting is more subjective than bookkeeping, which is mostly transactional.
Accounting typically involves:
- Preparing, analyzing, and reviewing the company’s financial statements
- Preparing to adjust entries
- Analyzing the company’s cost of operations
- Filing the company’s income tax returns
- Helping the business owner comprehend the impact of its financial decisions
Similarities Between Accounting and Bookkeeping
Any firm has to understand accounting and bookkeeping, two closely intertwined disciplines. Although documenting financial transactions is a common task for both bookkeeping and accounting, their objectives vary. Here are some examples of how accounting and bookkeeping are similar:
- They work with financial information. Financial data is gathered, handled, and reported in accounting and bookkeeping. This data includes documents like invoices, receipts, bank statements, and payroll records.
- Both of them employ ledgers and journals. Two of the most fundamental instruments used in accounting and bookkeeping are ledgers and journals. Ledgers are used to summarize financial transactions by account, whereas journals are used to record financial transactions chronologically.
- Both of them adhere to GAAP or generally recognized accounting rules. A set of accounting standards known as GAAP is applied to guarantee the accuracy and dependability of financial accounts. GAAP must be followed while accountants and bookkeepers record and report financial transactions.
Advantages and Disadvantages of a Bookkeeper
Below are the advantages and disadvantages of a bookkeeper:
| Advantages | Disadvantages |
|---|---|
| It gives information on all financial transactions. | The recordings don't provide accurate and current information. |
| The recorded data helps in understanding the business's actual financial situation. | Final accounts created through bookkeeping do not offer current information. |
| Knowing who to pay money to and from with bookkeeping is time-saving for businesses. | Management cannot make choices or take corrective action with the assistance of simply bookkeeping. |
| It manages the assets and operations of the company in an indirect way. | It relies on individual discretion. |
Advantages and Disadvantages of an Accountant
Below are the advantages and disadvantages of a accountant:
| Advantages | Disadvantages |
|---|---|
| An accountant maintains and analyzes the financial records and represents the financial standing of a business. | They mostly express insights related to accounting and finance in terms of money. |
| They render important financial data to management in the form of financial statements to help them in business decision-making. | In some cases, accountants can manipulate the statements of accounts. |
| They contribute to major business decisions, such as determining employees' expenses or a product's price. | Nil |
| They help businesses file income tax returns and other tax-related matters to save them from any penalties. | Nil |
Conclusion
With this comprehensive guide on the difference between bookkeeping and accounting, commerce students and aspiring finance professionals can have their basics clear. Keep checking HeroVired’s blogs for more conceptual clarity on accounting and finance.
However, if financial analysis and risk management are the two things that intrigue you the most and you want to excel in them professionally, we advise enrolling in HeroVired’s Financial Analysis, Valuation, & Risk Management course today!
For those still wondering about the scope of financial management, check out our blog on the 8 Key Scope of Financial Management!
FAQ's
What is the difference between Financial Accounting and Bookkeeping?
To put it simply, bookkeeping is more transactional as well as administrative, focusing on tracking financial transactions. Accounting uses bookkeeping data to provide you with financial insights for your company.
What are the recent updates taken in bookkeeping and accounting?
Rapid technological advancements are a big factor in this transition. The pandemic has sped up that adoption in numerous ways. For instance, a shift toward automation and artificial intelligence and a larger adoption of cloud-based accounting software.
Can bookkeepers perform accounting tasks and vice versa?
Accounting is now considered a way to transform data into knowledge. While accountants prepare and generate accounting reports to provide the financial data’s insight and analysis, bookkeepers manage daily documentation of all financial transactions.
Is bookkeeping a part of accounting?
For several reasons, bookkeeping is an integral part of the accounting process. From updating all business transaction data to helping accountants produce accurate financial reports with such datasets, bookkeeping is useful to the accounting process in many ways.
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