What is the difference between accounting and bookkeeping?
- Bookkeeping organizes your financial data. Accounting interprets and analyzes it. Both are essential for a solid business operation.
- Bookkeeping means keeping basic financial records, tracking and providing information used by a business.
- Accounting is the process of producing financial statements for a business, such as an Income Statement and Balance Sheet
- Bookkeeping is the recording of financial transactions and events, either manually or electronically. While recordkeeping is essential to data reliability, accounting is this and much more.
- Accounting includes identifying, measuring, recording, reporting and analyzing economic events and transactions. It involves interpreting information, as well as designing information systems to provide useful reports that monitor and control an organization’s activities.
- Bookkeepers are responsible for maintaining the “business checkbook”, much like a personal checkbook. They record routine money transactions like customer payments into a “cash receipts journal” and checks to vendors into a “cash disbursement journal.” They also process payroll. At month end they transfer or “post” the “journal” totals to the “general ledger” in preparation for financial statements prepared by the accountant.
- Accountants are responsible for the design and management of the financial systems that bookkeepers use. They prepare monthly financial statements and tax returns at year end. Accountants may also prepare budgets for management and loan proposals for bankers; and perform cost analysis for the company’s products or services.
- Bookkeeping is procedural and is largely concerned with development and maintenance of accounting records. It is the”how” of accounting.
- Accounting is conceptual. It is concerned with the “why”, reason or justification for any action adopted.