Understand the Difference Between Accounting and Bookkeeping
Both accounting and bookkeeping are two crucial functions of a business, but to a non-financial person, these two might seem to be the same. Since both of these deal with financial data, they require knowledge of basic accounting, organizing, and creation of reports using the financial dealings, these both are often overlapped.
However, bookkeeping and accounting are fundamentally different, and each has its own set of benefits and requirements.
Let’s first understand what is Bookkeeping & Accounting
Bookkeeping is mainly related to keeping proper records of the business’s financial transactions. It deals with classifying, calculating, and recording financial dealings, and it is a subpart of accounting.
Accounting is a process of analyzing the financial transactions of a business. It deals with grouping, summarizing, interpreting, assessing, reporting, and communicating financial transactions in a more orderly manner. It forms a specific department of an organization and is a business language in itself.
Since the information in bookkeeping service is not detailed or summarized, management cannot take decisions depending solely on the data from it.
From the highly classified, and organized data received from accounting, management can take critical business decisions. Accounting records play a crucial role while taking any critical managerial decisions.
The purpose of bookkeeping is to keep records of all financial dealings in a systematic manner. It helps in maintaining the finances of a business in chronological order and acts as the first step to accounting.
The purpose of the accounting service is to understand and measure the current financial situation of a business. Being recorded in a very standardized process, accounting statements are used to communicate the relevant business information to the stakeholders. These statements also give the reader an accurate and fair picture of the financial status of a company and its profitability.
Bookkeeping does not include financial statements.
Financial statements form an integral part of accounting, and the different statements like income statements, balance sheets, cash flow statements are prepared during the accounting process.
Required Skill Sets
Bookkeeping service is maintained by a bookkeeper, and he need not have expert knowledge of accounting. Along with primary knowledge of financial topics, a bookkeeper should have an eye for detail and should be accurate in his task. Mostly it is a clerical job and does not require any specific skill sets.
To understand the accounting statements and to analyze them, an accountant requires specific skills. A person with adequate experience and through formal education on finances can only become a Certified Public Accountant (CPA).
Bookkeeping is of two types – single entry system and a double entry system.
Accounting service includes the preparation of different types of budgets and loan proposals like Financial Accounting, Fiduciary Accounting, Cost Accounting, Tax Accounting, Management Accounting, Auditing, Human Resource Accounting, etc.
While accounting is more complex and systematic than bookkeeping, the financial system of an organization cannot function without the latter. The reason being that bookkeeping is the foundation of accounting, and thus if it is maintained accurately, it helps in bringing perfection to the books of accounts.