Learn the difference!

Learn the difference!

In the realm of business, accounting and bookkeeping play an extremely crucial role. Running any type of business typically relies heavily on these two functions as they help track income, expenses and provide important financial information that aid in making decisions for the company. However, despite being similar, bookkeeping and accounting are not the same. This article takes a look at some of the main similarities and differences between bookkeeping and accounting – and what you need to know about both of them.

What is bookkeeping?

Bookkeeping refers to the process of recording daily financial transactions for a business or company, on a consistent basis. It is a very transactional and administrative duty that involves the accurate recording of a business’s financial data – ranging from purchases to receipts to sales to payments. The ultimate goal is to make sure that financial data is well documented for the company’s future reference.

Bookkeeping duties are typically carried out by a bookkeeper, whose main duty includes maintaining the company’s general ledger – a detailed document that contains records of every financial transaction. This can be done in the form of manual records on paper to more specialised bookkeeping software, depending on the nature of the business and its requirements. Financial statements that are prepared include income statements, balance sheets, cash flow statements and statements of changes in equity.

There are also two main types of bookkeeping systems that are used – single-entry bookkeeping and double-entry bookkeeping. In single-entry bookkeeping, a cash book is the main type of record containing various entries spread across categories such as income and expenses. Double-entry bookkeeping refers to the usage of recording financial information in an accounting system where each transaction has an effect on a number of accounts.

Typical duties of a bookkeeper:

A bookkeeper carries out a number of daily accounting tasks; a few of which have been listed below:

  • Payroll system maintenance and processing
  • Handling payments, receipts and financial transactions
  • Business transaction recording
  • Initial financial statements preparation
  • Invoice processing
  • Management of documents and filing
  • Following up with payments
  • Managing and monitoring receivable and payable accounts
  • Expense claims processing
  • Handling VAT returns
  • Fundamental tax advice
  • Journal entry posting

What is accounting?

Accounting is a slightly more subjective and complex task compared to bookkeeping. It involves analyzing financial transactions in statements and reports to provide important insights and advice that help drive company decisions. In other words, accounting takes a look at the financial data provided by bookkeeping to offer a more holistic view of what is happening in the company and what the best financial courses of action are.

The ultimate objectives of financial accounting include the ascertaining of results of transactions recorded by bookkeeping, the ascertainment of the financial position of businesses, the provision of information for rational decision-making and to figure out solvency positions.

Typical duties of an accountant:

The tasks that are usually performed by accountants slightly differ to those done by bookkeepers. Below is a list of a few accounting tasks:

  • Preparation of adjusting entries
  • Budget management
  • Preparation of financial statements and reports
  • Business performance analysis
  • Auditing
  • Handling income tax returns
  • Financial analysis and strategy
  • Strategy and planning for tax
  • Financial forecasts
  • Advice regarding financial management
  • Preparation of detailed business plans and cash flow forecasts

Accounting vs bookkeeping – A comparison

Though both functions seem similar, they are not the same. Below is a closer look at the similarities and differences between accounting and bookkeeping.

The similarities

– Both functions involve working with financial data

– Both share the common objective of working to improve a company from a financial standpoint

– Both functions require accounting knowledge

– In certain small businesses, the two roles can overlap or interchange. They are sometimes done by the same person

– Both are tax compliant

The differences

– Bookkeeping is merely one aspect of the entire accounting process, while accounting encompasses a much broader scope, with more functions

– Bookkeeping is considered to be the foundation of accounting, while accounting takes advantage of bookkeeping data in order to carry out its duties

– The outcome of bookkeeping is to provide sufficient data for accounting, while the outcome of accounting is to provide the company financial analysis, reports and statements, in order to help make sound financial decisions

– The main goal of bookkeeping is to maintain a thorough record of the company’s transactions and financial data, while the main goal of accounting is to provide an analysis on the company’s financial strengths and activities

– Bookkeeping provides a detailed summary of the company’s financial transactions during a specific time period, while accounting helps find patterns within this data to provide financial insights

– Bookkeeping is typically carried out by a bookkeeper, while accounting is done by an accountant. However, in smaller companies, both functions might be carried out by the same person

– Bookkeeping is an administrative task and is clerical in nature – it does not require in-depth knowledge or skills. Accounting however, requires knowledge and skills across a variety of disciplines, including accounting policies and practices

What qualifications are required to become an accountant or bookkeeper?

Both bookkeeping and accounting jobs are among some of the most highly sought-after jobs in the market. A career in accounting or bookkeeping is sure to offer stability since the demand for such skill-sets will always exist. It is also a highly respected profession that offers great benefits, especially in terms of pay.

However, most jobs do require varying qualifications and educational requirements, which is why it is important to enroll yourself in a reputed programme – should you wish to pursue a career in the field. Global Edulink offer various bookkeeping related courses that can be accessed via https://www.globaledulink.co.uk/course-cat/accounting-finance/bookkeeping/

February 21, 2022

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