Bookkeeping and accounting are both relevant tool in communicating the financial activity, performance and condition of a business entity.
The important role of bookkeeping and accounting in every business has increased the demand for bookkeeping and accounting job or services worldwide. Because of the high demand, it made bookkeeping and accounting as two of the most profitable and rewarding profession in the world.
If you want to enter this lucrative profession and opportunity, it is a good choice to learn and understand the concept, principles and procedures of both bookkeeping and accounting.
In this article, you will pick up valuable learning on the distinct definition of bookkeeping and accounting, and the difference between them. You will understand the function and process of both bookkeeping and accounting, what separates bookkeeping from accounting, and when bookkeeping or accounting procedures is used.
Bookkeeping vs Accounting
It is very common for non-accountants to think that bookkeeping and accounting are of the same thing. Although they both involve the process of recording the financial transactions of a business, bookkeeping and accounting are two different topics.
Bookkeeping is the process of recording, in chronological order, the daily transactions of a business entity. It forms part of the accounting information system.
On the other hand, accounting is an information system – includes the process of recording, classifying, summarizing, reporting, analyzing and interpreting the financial condition and performance of a business – in order to communicate it to stakeholders for business decision making.
To provide a clear understanding of the difference between bookkeeping and accounting, take a look at this sample illustration.
Imagine there’s one piece of apple pie divided into 6 slices. Each slice was given a corresponding name as recording, classifying, summarizing, reporting, analyzing, and interpreting. The whole one piece of apple pie is called the accounting information system which represents accounting. On the other hand, bookkeeping represents one slice of the apple pie which is recording.
Bookkeeping is an important part of the accounting information system because it serves as the groundwork of accounting. Bookkeeping is a branch of accounting which is responsible in recording the financial transactions of the business. It is the starting point of the whole accounting process. The person responsible on the bookkeeping process is often referred to as bookkeeper or accounting clerk. They are the one who ensures the recording of business transactions in the book of accounts, such as journals and ledgers, in chronological manner.
Bookkeepers are responsible in safeguarding the completeness and accuracy of the book of accounts. They assist accountants in preparing reports, like financial statements or tax returns, by providing summary and supporting documents of the recorded business transactions. Bookkeeping is only limited to the recording process, although in cases of small businesses, bookkeepers may also do the preparation of reports. As such, bookkeeping can be performed by non-accountants who gained relevant trainings and experience in bookkeeping. To learn more about bookkeeping job, read our article entitled, “What is a Bookkeeper?” Read more here.
Accounting, on the other hand, represent the whole accounting process, from recording until interpreting business financial information. Accounting is one of the most diversified professions because professional accountants have different options in which area of accounting they want to focus their career – such as financial accounting, managerial accounting, tax accounting, auditing, etc.
Unlike bookkeeping, accounting jobs are performed by accounting graduates or licensed professional accountants. Accounting involves more technical understanding and procedures compared to bookkeeping. To learn more about accounting job and careers, read more here.
I hope this article has been helpful for you to learn the difference between bookkeeping and accounting. You may share your thoughts, additional information, queries and concerns via comment box below.
If you want to learn more about bookkeeping and accounting, you may refer to this book:
Find all of the following explained in Plain-English with no technical jargon: The Accounting Equation and why it’s so significant, How to read and prepare financial statements, How to calculate and interpret several different financial ratios, The concepts and assumptions behind Generally Accepted Accounting Principles (GAAP), Preparing journal entries with debits and credits, Cash method vs. accrual method, Inventory and Cost of Goods Sold and How to calculate depreciation and amortisation expenses. To get a copy, click here.