To understand the differences between bookkeeping and accounting, let us take a look at the meaning of each of these and what it entails.
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What is bookkeeping?
Bookkeeping refers to the process of systemic recording that is done for the purpose of classification of all financial transactions in an organisation. Bookkeeping is known as the very basis of accounting, with accounting referring to a much broader scope in the field of finance. The major purpose of bookkeeping is the maintenance of accurate records of all monetary transactions done in business. Companies refer to bookkeeping accounts to help leaders in matters of investment and other related fiscal decisions.
The bookkeeper is tasked with maintaining the records. Accurate bookkeeping is key for making informed business decisions as well in understanding the performance of a company.
The process of bookkeeping usually consists of the following steps:
- Identifying a financial transaction
- Recording a transaction
- Creating invoices
- Preparing a ledger account
- Preparing a trial balance
Bookkeeping primarily refers to recording accurate transactional information. It does not require analysis nor is it capable of influencing business decisions entirely by itself. But it is very important for financial statements like – income statement, balance sheets, cash flow statements.
What is accounting?
Accounting refers to the systematic recording, analysing, and communicating information related to financial transactions inside a business. Accounting helps to determine the financial status of a firm and presenting such data to the stakeholders of a company. In basic words, accounting refers to analysis of the financial data of an organisation which can help business leaders in making decisions.
Accounting is crucial in the short- and long-term monetary decisions in business. It also reflects the credibility of the company to the market. The major task of accounting is to provide a clear picture of the financial statements of a company and is presented to the investors and creditors alike.
Accounting involves advanced learning and skills for understanding and analysing concepts. Accounting is done for the analysis of data which is needed for creating insights crucial for the development of the business. Creating financial statements is a part of the accounting process. Unlike bookkeeping, the systematic data generated from accounting. Accounting also forms an important part in filing taxes.
The major difference between accounting and bookkeeping is in their objectives. Bookkeeping refers to the systematic recording of financial transactions and accounting is the analysis of that information to help leaders make decisions.
Small business owners may not need accounting experts but will certainly need bookkeeping. Understanding what the numbers stand for can decide for the success or failure of a venture.
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