Sunday, July 21, 2024

5 Differences Between Bookkeeping and Accounting

Booking and accounting are the necessity of every business. These are the practices required to prepare quarterly or annual financial records. Furthermore, practical bookkeeping helps companies to evaluate their worth to make decisions regarding their growth. 

Although accountants use the terms bookkeeping and accounting interchangeably, there lies a difference between the two. While both are inseparable when working on the financial transactions of a business, they are different. Bookkeeping is part of accounting, but accounting has a much broader scope.

We will share five key differences between bookkeeping and accounting for easy understanding. 

Definition 

Bookkeeping is mainly related to maintaining and recording all financial transactions in the books of entry of a business. It involves organising and summarising every financial transaction in the company in a systematic chronological manner. The bookkeeping services focus on the day-to-day economic activities of a business, such as payment of taxes, payroll, sales revenue, interest income, expenses, etc. The accuracy of bookkeeping determines the accuracy of the accounting process.

Accounting involves interpreting financial data, analysing and summarising it for insights, and reporting financial transactions. As a comprehensive process, the financial statements generated in accounting provide a precise summary of the finances over an accounting period of a business. Accounting consolidates financial information that helps stakeholders understand a business’s financial health and practices. 

Decision making

The data from practical bookkeeping needs to be more comprehensive to help prospective decision-making. Bookkeeping reflects on the financial transactions of the business. It tracks sales, profits, debt, bills, purchases, and other financial transactions, which are essential for the balance sheet.

Accounting maintains and compiles the daily transactions into financial statements and helps management anticipate and forecast the company’s performance. It helps provide an accurate and transparent view of the prospects of a business to all stakeholders so they can assess the company’s performance.

Financial statements 

Bookkeeping doesn’t involve preparing financial statements. It is kept simple as it does not require analysis of the expenditure or auditing of the financial transactions. 

Accounting involves creating comprehensive financial statements that help the management and stakeholders understand the financial performance, stability, and prospects of the business. 

Level of learning 

Bookkeepers are not required to have any high-level skills. Bookkeeping services are just needed to have knowledge of financial topics and be accurate with their data entry. On the other hand, accountants oversee bookkeepers and must have sufficient experience and education to be Certified Public Accountants (CPAs).

Bookkeeper vs. Accountant 

While accounting & taxation services offer both services, there is a significant difference between the duties of a bookkeeper and an accountant. 

Bookkeepers recommend, implement and manage accounting software for single or double-entry accounting. They are responsible for monitoring bookkeeping policies and procedures. They must handle all financial and banking transactions and maintain debit and credit accounts. 

Accountants perform a much more significant role, including data management, financial analysis and reporting, consultation and regulatory compliance. 

Conclusion

Bookkeeping and accounting are integral parts of every business. If your business doesn’t have qualified professionals, you can hire accounting & taxation services for practical bookkeeping and more.

Claire James
Claire Jameshttp://www.firedigitaluk.com
Claire is an accounts manager at Fire Digital UK, an online publishing and content marketing company based in the North West.

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