Difference between Accounting and Bookkeeping

 

Key Difference: Accounting is the overall finances of the company and communicating financial information of the company. Bookkeeping is the process of recording daily activities of the company.

 

Accounting Bookkeeping are two important functions of the Finance Department that are responsible for record and tracking funds as well as creating financial statements. These two are often confused as they both are associated with income and outgoing of funds. However, they are different from each other. While accounting deals with creating financial statements and analyzing the worth of the company, bookkeeping only deals with recording day-to-day transactions.

 

Accounting or accountancy is a part of the Finance Department that is responsible for communicating financial information about the company to people such as shareholders, managers, banks, etc. The communication takes place in the form of financial statements such as profit and loss statements, annual reports and balance sheets. These statements show the amount of economic resources that is available to the management. Accountancy are divided into three main segments in medium to large companies such as accounting, bookkeeping, and auditing.  Accounting also includes analyzing, interpreting and predicting the financial stability of the company. Accountants are also responsible creating monthly fiscal statements and yearly tax returns.

 

The earliest records of accounting have been dated back more than 7,000 years to Mesopotamia. These were used in order to assist the businessman to remember the day to day activities that he did. The American Institute of Certified Public Accountants (AICPA) defines ‘accountancy’ as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof." In today’s world, accounting is being considered as “the language of business” as it is used for reporting the financial information of the business. Accounting is considered as a form through which a business shares the company’s information with the outside world, including shareholders, customers, government and financial institutions. As the stronger the finance of the company, the better business it can provide and the more beneficial it is to the economy. Accounting is governed using Generally Accepted Accounting Principles, or GAAP.

 

Bookkeeping is an activity that is a small part of accounting and the Finance Department. Bookkeeping is the process of recording daily activities of the business, including receipts, payment, purchases, sales and expenditure. A bookkeeper is usually hired in medium to large companies that is responsible for recording these transactions. Bookkeeping is considered as a small part of accounting. Accounting uses the books in order to create the financial statements. Bookkeeping involves recording each and every transaction that happens in the day, which is then tallied at the end of the day and the end of the month. This is to see if the figures tally with the amount that is earned or spent by the company. Bookkeeping is done with the help of ledgers, account books, cash books, etc. Originally bookkeeping was done in a book, that is where the name comes from, but now it is done on various different programs on the computer.

 

There are two methods of bookkeeping, single-entry and double0entry. Single-entry system of bookkeeping requires inputting the entry only once in either the credit column or the debit column. The credit column for any money that is incoming, while the debit column is for any money that is going out. The two columns are maintained and then tallied at the end of the month to see how much profit is earned or loss is sustained. Double-entry system requires putting one entry twice, once in the credit column and once in the debit column. This is done to ensure that no entries are accidently missed. It is also an easier way to tally the accounts.

 

Both of these techniques play a huge part in the finance of a company, as bookkeeping deals with daily records, while accounting deals with monthly or yearly accounts. Bookkeeping plays a huge part in accounting as the entries are used from bookkeeping to create the different accounting statements.

 

 

Accounting

Bookkeeping

Definition

Preparation of accounting records.

Recording daily activities of revenue and expenditure.

Purpose

Measuring, preparation, analyzing, and interpretation of financial statements. To collect and present financial information.

Keeping an account of all receipts, revenues, expenditure in order to create accounting ledgers.

Goal

To see how the company is performing, to monitor day to day accounting operations, and for taxing.

To see how the company is performing daily and where the money is being earned from and utilized.

Tools

Balance sheets, profit and loss ledgers, positional declarations, and cash flow statements.

Supplier ledger, customer ledger and general ledger and cash book.

Determination of funds

Revenue is acknowledged at the point of sale and not when it was collected. Expenses are acknowledged when they are incurred than when they are paid.

Revenue is acknowledge when it received by a customer on sale of a product or service. Expenses are recorded the moment they occur, including all receipts.

 

 

Image Courtesy: americancpe.com

Image Courtesy: allinallaccountancy.co.uk

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Comments

thanks more for your help.it is greatly helpful !

its helpfull thanks

Nice article
Solved my problem for which I was confused for so long....

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