In financial and accounting terms bookkeeping and accounting are interrelated to each other. Bookkeeping comes under accounts. Bookkeeping is performed by a bookkeeper but accounting is done by an accountant. An accountant can do the job of bookkeeping but a bookkeeper can’t perform accounting. Accounting needs a high level of knowledge about accounts for understanding and analyzing accounting concepts but in bookkeeping, no high-level learning is required.
What is bookkeeping?
Bookkeeping is the activity of recording financial transactions of a business such as purchase, sales, receipt, and payment. It is the activities concerned with the systematic classification and recording of financial data of an organization in an orderly manner. It is essential to form a financial data of a business organization at the end of the financial year. There are many methods of bookkeeping but the common methods are double entry system and single entry system. The employee in an organization who does bookkeeping is known as a bookkeeper.
Objective of bookkeeping.
The main objective of bookkeeping is to keep a complete record of the financial transitions of an organization. The financial effects of these transitions are reflected in the book of accounts.
The second objective is to get an overall recorded transaction on the financial statement of a company. Bookkeeping includes the financial account of a company such as profit and loss account, cash flow statement and balance sheet.
Bookkeeping includes a lot of activities such as;
- It records all financial transactions.
- It posts debit and credit in the ledger book.
- It produces all source documents such as invoice receipts.
- It shows the financial statement of an organization.
What is accounting?
Accounting is the process of recording, classifying, and summarizing financial transactions of an organization or an institution. Accounting is a broader concept than bookkeeping. Bookkeeping is a part of the accounting process. In accounting, only financial transactions which can be expressed in terms of money are recorded. It helps to know the financial position of a business or an organization. It helps a business in decision-making for the long and short term.
Objective of accounting.
The main objective of accounting is to keep systematic records of financial transactions of a business in a proper manner that helps to understand the day-to-day transactions and expenses of a business. It helps to know the financial position of the business, which means the profits and losses of the business organization.
Accounting includes a lot of activities such as;
- It identifies financial transitions.
- It keeps records of financial transactions.
- It prepares ledger accounts and trial balance.
- It prepares the financial statement.
- It analyzes financial statements.
Difference between bookkeeping and accounting
|Bookkeeping consists of recording financial transactions in a proper way.||Accounting summarises such recorded financial transactions.|
|It is the basis of the process of accounting.||Accounting is the basis for the business language.|
|It is done by bookkeepers, who do not require any special skill or knowledge.||Accountants require special accounting knowledge and skills.|
|Bookkeeping does not have any branches.||Accounting has branches such as cost accounting, management accounting, etc.|
|Financial statements are not a part of bookkeeping||Preparing financial statements is the aim of accounting.|
|Managers don’t make decisions on the basis of bookkeeping records.||Managers use accounting records for decision-making.|