The thin line of difference between bookkeeping and accounting

Many people use the word bookkeeping and accounting interchangeably, but you should know that both are different parts of accounting. You can consider bookkeeping as a stepping stone for the further accounting process or bookkeeping as the initial stage of accounting.

Having an in-depth knowledge of the various functions of your finances is a vital part of a business strategy because it will allow you to have a better look at your current business status. Without understanding your finances, you will not be able to run your business properly. Moreover, this practice will also help you to carry on with your various financial processes in a much better way. Therefore, in this blog post, we will be looking at the thin line which keeps the bookkeeping and accounting apart but also keeps it woven into the same function of finance.

What is bookkeeping?

Talking in layman’s language, bookkeeping is simply the practice of recording the financial transactions and is obviously a part of the process of accounting. The financial transactions which are recorded include purchase, sales, receipt, etc. The practice of bookkeeping involves extensive data input and is commonly known as the practice of maintaining the financial books and by books we mean the book of accounts.

What is accounting?

It is the measurement, processing and communication of financial information about entities such as firm and organizations. Talking in layman’s language, it is a step by step process of identifying, measuring, classifying, communicating and summarizing the financial information. So from the above definition of accounting, you can see that accounting is a very broad term. The practice of accounting gives profit and loss status of business for a particular period of time and it also allows the owner to know the assets, liabilities and equity.

The similarities between bookkeeping and accounting

Bookkeeping and accounting may be different, but they are the part of the same financial process and that’s why they have some similarities as well. For example, records are an important part of both bookkeeping and accounting, they both are the part of the same financial process, etc. When you look at the financial operations of small businesses then you will notice that the practice of bookkeeping is practiced more like an accounting process rather than just a simple recording of transactions.

The differences between bookkeeping and accounting

• The practice of bookkeeping is carried on by a bookkeeper while the process of accounting is carried on by an accountant.
• Bookkeeping is the subset of accounting while accounting is considered as the language of the business.
• Creation of financial statement is not a part of bookkeeping while the same is a vital part of accounting.
• The tools of bookkeeping include journals and ledgers while the tools of accounting include balance sheet, profit and loss, account and cash flow statement.
• No business decision can be taken on the basis of bookkeeping records while most of the major business decisions are taken on the basis of financial records.

Now, you must have understood the basic differences and similarities between accounting and bookkeeping. This is very much important for both financial knowledge and running your business smoothly. A non-professional persona may use the two words interchangeably, but as a business owner, you should know the differences.

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