What is the difference between Accounting and Bookkeeping?
08

Nov 2021

Accounting and bookkeeping are two of the most important processes which should be followed by all businesses. According to most people, Accounting and Bookkeeping can be used interchangeably. This is a wrong concept. Even though both bookkeeping and accounting share a common goal, they both are very different from each other. In this article, we will point out the major differences between Accounting and Bookkeeping.

First, we will talk about both of the processes, and later on, we will enumerate the differences between the two.

What is Accounting?

Accounting can be understood as a process in which various financial information is procured and analyzed by an accountant. This financial information helps the management of a company to make decisions regarding the future of a business. In accounting, all the financial transactions of a company are classified, analyzed, interpreted, reported, and summarised so that the data is easier to understand for the management.

An accountant will require comparatively more skill than a bookkeeper as there are a number of tasks to refine the financial data, and also the accountant needs to present the data to the people (the investors and the management) in such a way that it is easy to understand.

What is Bookkeeping?

Bookkeeping is one of the most basic but very important functions which should be performed in all of the businesses. The main function of bookkeeping is to record all the financial transactions conducted by a business. These recordings form the basis for all the accounting processes and also help in the generation of all the accounting records and statements of the business.

A bookkeeper needs to maintain accuracy in recording all the transactions of the business, and they should be in constant contact with the accountants so that good knowledge sharing can be done. The accountant can also advise the bookkeeper as to what information should be prioritized and which can come later.

Differences between Accounting and Bookkeeping

Accounting and Bookkeeping can be differentiated in many ways. Some of the differences between them have been tabulated below:

Basis

Bookkeeping

Accounting

Definition

The process of bookkeeping mainly involves identifying and recording the financial transactions of a business.

Accounting is the process of classifying, analyzing, interpreting, reporting, and summarising the company’s financial data.

Decision Making

The bookkeeping data is unrefined and is just the recording of all the transactions of the company. This data forms the basis of all the accounting and other financial processes.

Accounting involves the refining of the data which has been obtained by bookkeeping. This data is used by the management of the company to make decisions for the future.

Objective

The main objective of bookkeeping is to record all the financial transactions of the business.

The main objective of accounting is to analyze and present the bookkeeping data to the investors and the company’s management in a simple and in a manner that they will easily understand.

Financial Statements

In this step, it is not required to prepare the financial statements. Instead, the bookkeeper only records all the transactions of the business.

All the data acquired from bookkeeping is utilized to prepare the financial statements, which will help both the investors and the management of the business to make informed decisions.

Analysis

There is almost no analysis of data required in the bookkeeping process.

The data acquired from the bookkeeping process is analyzed to prepare the various financial statements.

Skill Requirement

A bookkeeper does not require any special set of skills

An accountant requires special skills to analyze all the data acquired by bookkeeping.

Authority

An accountant usually supervises the work of a bookkeeper. The bookkeeper must record all the financial transactions of the company with great accuracy.

The work of an accountant is not overseen by any authority but can be later examined by an auditor.

 

These are some of the basic differences between Accounting and Bookkeeping. This shows us that there are many differences between the two, even though both the processes are related. We can say that bookkeeping is a part of the accounting process, whereas accounting is a separate financial process that is to be performed by all businesses.

To know more about Accounting and Bookkeeping and how it can help your business, you can consult the experts at JAXA Chartered Accountants. Jaxa Chartered Accountants are a financial firm that has great expertise in such matters. For more details on the services provided by JAXA, feel free to Contact US. We will be happy to help.