Difference between Accounting and Bookkeeping- Importance in Business

Accounting and bookkeeping help a business evaluate its worth and plan its future by preparing financial records at the end of a year/ quarter. Bookkeeping and accounting are inseparable, however, there is a thin line distinguishing the two. While accounting has a broader scope, bookkeeping is a part of it. Accounting and bookkeeping might seem like the untrained eye because both require basic accounting knowledge. But they are inherently different and have their own sets of advantages. 

What is Bookkeeping for Businesses?

The process of maintaining and recording all financial transactions is bookkeeping. Bookkeeping involves summarizing and organizing all day-to-day financial transactions in the system chronologically. The financial transactions in bookkeeping include tax payments, sales revenue, loans, payroll, and other expenses and investments, etc. Bookkeeping involves transactions held in the original entry books of a business. There are original account books to record the transactions. The account books need to be up to date as their accuracy determines the accounting process of a business. Bookkeeping is mainly identifying and recording financial transactions.  

What is Accounting for Businesses?

The process of interpreting, analyzing, summarizing, and reporting the financial transactions of a business is accounting. Accounting is the summary of financial transactions over an accounting period. Accounting statements summarize a business’s financial position, operations, and cash flow. It helps a company maintain an accurate and timely record of the finances to consolidate financial information. Accounting includes maintaining the record of income statements, cash flow statements, and balance sheets. These statements help to assess the performance of the company by all stakeholders. The accountant maintains and compiles all the records to make them more understandable and transparent for the stakeholders. 

Differences Between Accounting and Bookkeeping Services

There is a significant misconception among people that bookkeeping and accounting are one profession. They may seem similar from afar, but they are many striking differences between the two:

  • While bookkeeping is the foundation of a company, accounting uses the information provided by bookkeeping for preparing reports and statements related to finances. 
  • Bookkeeping is just a segment of the accounting system, while accounting has a broader perspective. 
  • Bookkeeping is the source of input for accounting, whereas accounting makes decisions and judgments based on that information. 
  • Bookkeeping is a track record of all financial activities and transactions in chronological order. Accounting aims at obtaining the financial strength and results of the operational activities of a business. 
  • Bookkeeping summarizes all the financial transactions and their effects on the business but for a given period only. While accounting interprets and analyses financial information for judgments and informed decisions. 
  • Bookkeeping is clerical and does not require any special knowledge or skill. On the other hand, accounting requires specific skills related to accounts and various accounting practices and policies. 
  • Bookkeeping does not involve any financial statements. At the same time, all the financial statements and records are prepared under the accounting process. 
  • While bookkeeping is always per the accounting conventions and concepts. Accounting has a different approach. Accounting procedures and methods of interpretation and analysis of financial reports vary from one entity to another.  
  • The business owners cannot finalize a decision based on bookkeeping. Any critical decision is taken depending on the data provided by the accountants handling the accounting team.  
  • Bookkeeping is of two types: Single entry and double-entry bookkeeping. Accounting has a specific approach and aims for preparing a company’s budgets and loan proposals that vary from one entity to another.   

In simple words, bookkeeping is responsible for recording financial transactions, whereas accounting needs more responsibility.   

Location: India

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