Budget allotment and utilization is an essential aspect of any business organization. With the income and expenses appropriately organized, it becomes easier to assess the development of the firm. Bookkeeping and accounting might seem identical but are different in their application.
Both bookkeeping and accounting are vital as they make it easier for budget analysis. Financial records play a significant role in the identification and assessment of the cashflow of a business organization. Such organized financial records also help in decision-making and framing of strategy for the firm’s future development.
The financial management of any firm is governed by bookkeeping and accounting. These terms might appear to be the same but are different, and both the practices follow a set of specific rules that are beneficial to the organization.
What is Bookkeeping?
The best virtual account company can help to maintain bookkeeping. Gone are the days of manual record keeping. The incorporation of technology has made it easier to keep financial records. The dictionary defines bookkeeping as the process of recording day-to-day financial transactions of any organization.
Depending on the firm’s management, the bookkeeping process can be followed by a single entry or a double-entry process. In either of the methods, the fundamental concept of bookkeeping needs to be maintained.
Financial records maintenance is crucial as they serve as the firm’s primary accounting component and build a financially stable business component.
The Process of Bookkeeping
The process flow of bookkeeping serves as a vital point of difference from accounting and involves the following steps
- Posting of all the debit and credit transactions of a venture accurately.
- Creating invoices.
- Identifying and recording of financial transactions of a firm.
- Preparation and maintenance of general ledger accounts.
- Management and preparation of trial balances.
- Payment of the employees and recording of the payroll and taxes paid.
- Maintenance of records of payment to the contractors and suppliers.
- Registration of payments for outstanding invoices.
- Invoicing of the goods and services delivered to customers.
What is Accounting?
Accounting helps the management or owners record, analyze, categorize, and summarize the financial transactions of their organizations. The information obtained and compiled from bookkeeping is utilized for preparing the financial analysis and reporting.
Based on the activity, accounting is divided into
- Tax accounting
- Financial accounting
- Management accounting
- Internal auditing
Conceptually, accounting is broader than bookkeeping and is a significant point of difference. Accounting also includes public accounting and government accounting and involves various branches, unlike bookkeeping, which merely maintains and records financial transactions.
Process of Accounting
The accounting process involves:
- Adjusting the recorded entries.
- Assessing operational expenditure.
- Completing the tax returns.
- Weighing and evaluate the impact of decisions on financial accounting.
- Formulating and analyzing financial statements.
- Preparation of ledger accounts and trial balances.
Accounting is an indispensable part of any business venture, and accounting helps in decision making. Accounting gives a clear picture of the expenditure and income. The distribution of spending in different fields as salary, production cost, expense, and so on provides management with an idea of expenditure trend. This idea, in turn, helps them o decide on future budget and planning.
Bookkeeping Vs. Accounting
Accounting is a broader term that involves maintaining, recording, and analyzing any organization’s financial structure. On the contrary, bookkeeping is the mere maintenance of the financial records that help in future accounting processes.
#1: Nature of Role
- Classifying and recording financial transactions.
- Tracking of income and expenditure for tax season.
- Preparation of bank reconciliation and that of the general ledger.
- Filing of tax returns.
- Analyzing, interpreting, and providing personal advice on the data obtained from bookkeeping.
- Assessing and analyzing the information obtained from the ledger for preparing financial statements.
A bookkeeper needs two to four years of experience in addition to an associate degree and does not qualify for any additional certification.
An accountant needs a bachelor’s degree in accounting or an applicable finance degree. The accountant qualifies for additional certification, as, for instance, accountants are eligible to obtain the designation of Certified Public Accountant.
#3: Decision-making Role
Bookkeeping does not involve any decision making for the firm and is the process of recording financial data.
On the contrary, accounting impacts decision making for any firm significantly. The accounting process gives a clear picture of the firm’s income and expenditure, which enables the management to assess points of either increasing or decreasing cost.
#4: Determining Financial Position
Bookkeeping does not involve any financial position of the firm and is not a vital position to hold. While the accountant position is an important one in the management level and accounting helps in decision making. Accounting also identifies the loopholes and revenue loss positions of a firm.
#5: Financial Statement
A financial statement is not a part of bookkeeping, while a financial statement is prepared through accounting which is a crucial part of business development.
Now that you have an idea of the difference between bookkeeping and accounting, it’s time to check what service you need. Be it any of the business development or financial services, we are here for you.