What is the Difference Between Bookkeeping and Accounting?
Bookkeeping and accounting are often used interchangeably in financial terms. These concepts are not the same. Accounting is concerned with interpreting, analyzing, classifying, reporting, and summarizing financial data. Bookkeeping is primarily about recording financial transactions.
What is Bookkeeping?
Bookkeeping is the systematic recording and classification financial transactions in an organization.
Accounting is a subset of finance, while bookkeeping is the foundation of accounting.
Bookkeeping’s main goal is to keep a record of every monetary transaction of a company. This information is used by companies to make major investment decisions.
The bookkeeper keeps records of bookkeeping. Bookkeeping accuracy is crucial for businesses as it provides reliable information about the performance of an organization.
The bookkeeping process is composed of these steps:
- How to identify a financial transaction
- How to record a financial transaction
- How to prepare a ledger Account
- Prepare the trial balance
What is accounting?
Accounting is a systematic way of recording, analyzing and communicating financial information in an organization. Accounting is used to determine the financial status of a company and communicate it to its stakeholders.
It is a tool that helps businesses make short- and long-term decisions and conveys credibility to the market.
Also known as business language.
Accounting has the purpose of providing a clear picture of financial statements for its users. This includes investors, creditor, employees and government.
In the table below, we will examine the main differences between accounting and bookkeeping.
Differences Between Bookkeeping and Accounting
| Aspect | Bookkeeping | Accounting |
|---|---|---|
| Definition | The identification and recording of financial transactions. | The process of interpreting, summarizing, and communicating financial data for an organization. |
| Decision-Making | Does not provide enough data for decision-making. | Provides data that can be used to make important management decisions. |
| Financial Statements | Does not involve the preparation of financial statements. | Involves the preparation of financial statements. |
| Analysis | Does not require analysis. | Involves the analysis of data to provide business insights. |
| People Involved | Performed by bookkeepers. | Performed by accountants. |
| Determining Financial Position | Does not provide a clear view of a company’s financial health. | Provides a clear view of a company’s financial situation. |
| Levels of Learning | Does not require high-level education. | Requires a higher level of knowledge to understand and analyze concepts. |
This comparison highlights the key differences between bookkeeping and accounting, helping students and business professionals understand their distinct roles in financial management.