Accounting Vs Bookkeeping
Bookkeeping and accounting are two very famous words, which are usually heard together. But do you know the difference between bookkeeping and accounting? These two words are generally used interchangeably and they are both related in one way or another. So let us take a look at these two terms separately and see what difference they actually have.
Bookkeeping
This is a process by which transactions are recorded in the books of accounts. The most common use of bookkeeping records is for accounting purposes. Accounting is defined as the procedure of arranging financial transactions in such a way that accounting data can be retrieved as and when necessary to support managerial decision-making. So the main function of bookkeeping is not to make financial reports but is used to facilitate accounting.
Bookkeeping differs from accounting in some ways. Firstly, bookkeeping usually involves the collection of financial data such as the income statement, balance sheet, and statement of cash flows. It also involves the preparation of tables describing financial data such as assets, liabilities, revenues, and expenses. In other words, bookkeeping includes the tasks of collecting, classifying, maintaining, analyzing, communicating, reporting, and interpreting financial data.
Accounting
The main function of accounting is to interpret and communicate the results of financial activities to management. So the major difference between bookkeeping and accounting is that in the former, all the work that was per-planned is done on the financial records, while in the latter, certain decisions are made per-annually in the year in which the records are kept. Also, in bookkeeping, certain transactions are done on a daily basis whereas in accounting transactions are done on an annual or semiannual basis.
A bookkeeper is a person who does the financial work. Usually, there is a single bookkeeper for a company. In the case of small businesses, there may be one account holder for the entire business whereas in large businesses there may be more than one bookkeeper for the organization. A bookkeeper’s duties include preparing daily records; classifying, maintaining, and interpreting accounting documents; communicating financial information to owners, customers, and lenders; and conducting audits of accounting records. The responsibilities and duties of an accountant are quite different from that of a bookkeeper.
Why You Should Hire a Bookkeeper?
If you run a small business, then you can afford to hire a bookkeeper. Hiring a bookkeeper is not at all a bad idea. As a matter of fact, it can be seen as an investment for your small business. Since there will be many other staff members, you can assign certain functions to them. For instance, if you want the accounting department to have a monthly meeting, you can assign the task to the accountants. In case of any difficulty, you can always get help from the bookkeepers.
Now, if we compare the two jobs in terms of compensation, the compensation involved in accounting works out to be much higher than that of a bookkeeper. This is because in the case of accounting the accountant has to make estimates based on the data input and the manual work that he would do. On the other hand, a bookkeeper has to estimate based on the information given by the customer. So, the bottom line is that bookkeeping vs accounting should not be considered as an easy task. Both the jobs involve a lot of hard work and accurate performance.
Conclusion
Generally, the accountant prepares financial records based on the recorded transactions while the bookkeeper creates statements to present to investors, banks, and government agencies. A bookkeeper’s job is quite different from that of an accountant. The accountant just needs to ensure the accuracy of the recorded transactions and the bookkeeping or financial records are kept properly. On the other hand, the bookkeeper needs to create reports based on the recorded data and ensure that the figures presented to the interested parties are correct and up-to-date.
