Before we delve straight into finding the difference between bookkeeping and accounting, we should familiarise ourselves with the underlying importance of recording financial transactions in general.
Financial records play a significant role in identifying the major cash flow sources of a firm. Such records also come in handy for determining the financial standing of a firm, and in turn, help to craft suitable strategies to increase revenue generation and lower expenses. However, the task in itself is so vast that firms often need to avail professional help to manage it systematically.
On that note, both bookkeeping and accountancy are vital for a business firm and play an important role in financial management. Though it may appear to be the same for some individuals, both practices follow a different set of rules and benefit an organisation in different ways.
That being said, let’s now move on to find out what exactly is booking and accounting and their purpose. While at it, we will also make our way to find out points which set them apart from one another.
Bookkeeping can be defined as a process of recording everyday financial transactions of an organisation. To practice bookkeeping effectively, individuals need to follow the fundamental concepts and conventions of accounting.
Bookkeeping Can be Divided into Two Types –
It is primarily responsible for recording financial transactions which in turn serve as a basis for accounting. Hence, bookkeeping can be credited as an integral component for building a financially sound business venture.
The composition of bookkeeping serves as an essential point of difference between bookkeeping and accounting.
Let’s check out these pointers below to find out which processes are involved in bookkeeping.
Identifying and recording financial transactions.
Posting all debits and credits of a venture accurately.
Preparing and maintaining general ledger accounts.
Preparing and managing trial balances.
Test Your Knowledge: What is a bookkeeping journal? Choose the most suitable option from these –
a) Bank documents b) Personal diary c) Books of original entry
Now that we have gained a fair idea about bookkeeping let’s move on to find more about accounting.
One can simply define accounting as a process that helps firm owners to record, categorise, summarise and even analyse financial transactions of their venture. It uses the information compiled during bookkeeping for preparing various financial reports, which, in turn, prove effective in determining a number of things.
Generally, accounting can be divided into these types –
Other than these, public accounting, government accounting, etc. form a part of accounting. Notably, as a concept, accounting is broader than bookkeeping and is undoubtedly a point of difference between bookkeeping and accounting.
It not just comes in handy for business owners but also helps stakeholders and investors to gauge the financial standing of an organisation at any given point of time.
Go through these following pointers to distinguish between bookkeeping and accounting more accurately –
Recording adjusting entries.
Formulating and analysing financial statements.
Preparing ledger accounts and trial balance.
Assessing operational cost.
Completing tax returns.
Weighing the impact of decisions pertaining to finances.
Hence, accounting is an indispensable part of any business venture irrespective of the scale and size of its operation. On that note, let’s quickly move along to glance through the basic difference between accounting and bookkeeping.
Here some of the major difference between bookkeeping and accountancy in tabular form –
Check out this pie chart to find out the booking and accounting difference in graphic illustration. Image will be uploaded soon.
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1. What is Bookkeeping?
Ans. Bookkeeping is the process of maintaining a book to record all financial transactions and events of a firm. It helps businesses to identify and keep track of all financial transactions of a firm systematically and serves as a base for accounting.
2. What is Accounting?
Ans. Accounting is a process which records, classifies, summarises and interprets information pertaining to a firm’s financial transactions. It comes in handy for analysing financial data of a firm and in turn, helps to gauge its financial performance.
3. Give the Difference Between Bookkeeping and Accounting.
Ans. The difference between bookkeeping and accounting lies in their objectives. The objective of bookkeeping is to maintain a systematic record of all financial transactions. On the other hand, accounting helps to determine the financial position of a firm.