Accounting and bookkeeping are two distinct but essential business functions necessary for a smooth flow of operations. A common misconception most people have is to think that the two are the same thing. But they are indeed distinct functions in a business.
In this article, you will learn the definition, differences, and how accounting and bookkeeping are essential for the smooth functioning of a business.
Bookkeeping is responsible for keeping an up to date record of all the transactions of a business. Accounting, on the other hand, is responsible for the more complex financial tasks of a business.
These include interpreting, classifying, analyzing, reporting, and summarizing financial data.
From the report of an accountant, a business can then make an informed financial decision.
The Financial Process of a Business
For an untrained eye, accounting and bookkeeping may appear to be the same thing. This is since both deals with the finances of a business.
The advent of accounting and bookkeeping software such as Xero has further thinned the line between the two.
But when you look closely, bookkeeping is just a subset of accounting. It only requires basic accounting skills. This means an accountant has the skills of a bookkeeper while a bookkeeper cannot do the work of an accountant.
Bookkeeping is usually the starting point of the financial process of a business. Here the bookkeepers record all the transactions of a business. The rest of the process is then handled by the accountants.
Once accountants have the data, they report on the health of the business based on classifying, analyzing and interpreting the data. Business owners can then use this report to decide on the next move for the business.
Differences Between Accounting and Bookkeeping
| Accounting | Bookkeeping | |
|---|---|---|
| Definition | Accounting is the process of interpreting, classifying, analyzing, reporting, and summarizing the financial data of a business This is the process of recording all the financial transactions of a business | This is the process of recording all the financial transactions of a business |
| Objective | The objective of accounting is to determine the financial health of the business then use that data to make an informed financial decision | Bookkeeping is aimed at keeping all the financial records of a business in an orderly and systematic way |
| Decision making | Business authorities can rely on the report of an accountant to decide the next move for the business | Bookkeeping cannot inform decision making for a business |
| Skills required | Accounting requires that you get specialized training to correctly analyze and interpret financial data | There are no special skills required for bookkeeping |
| Financial statements | In the process of accounting, financial statements can be made here | Bookkeeping has cannot produce financial statements |
| Types | Accounting is involved with making budgets for the business, departments, etc. and also in writing loan proposals | Bookkeeping is only of two types namely single and double-entry bookkeeping |
| Analysis | Accounting relies on bookkeeping to come up with analysis reports for the business | There is no analysis required for bookkeeping |
| Bookkeepers vs Accountants | Accountants are more trained and possess more skills. Experienced accountants can also earn the title of Certified Public Accountants (CPA) | Bookkeepers only require basic accounting skills. But they must be knowledgeable about financial matters. Accountants oversee the work of bookkeepers. |
The Future of Accounting and Bookkeeping
Accounting and bookkeeping have been essential business functions for many years. But with improved technology, the line between the two is becoming thinner. This has brought some changes such as;
(A) Merging of both accounting and bookkeeping – with the entrance of accounting and bookkeeping software, most business operations can be done easily, quickly, and accurately. The software also eliminates the need to hire more people thus reducing the operating budget.
With software such as Xero that can do both accounting and bookkeeping, then the stage for operational disruptions has been set.
(B) Bookkeeping becoming obsolete – bookkeeping is slowly becoming obsolete as a result of advancements in technology. The functions of a bookkeeper are now being done by computers.
(C) Moving of business functions to mobile gadgets – with smartphones now being a common gadget, businesses are taking their services online from where their clients can reach them easily. This has also made it possible for remote access to work files making it easy to work from anywhere.
(D) Outsourcing from experts – the shifting landscape of business operations can be overwhelming. This is especially if you are keen on cutting operational costs while maintaining profitability.
Engaging the services of a professional accounting and bookkeeping expert takes this pressure away from you. It allows you to focus on other important aspects of your business such as profit-making while the expert handles the tedious papers.
Leftright Corporate Pte. Ltd. are experts in both bookkeeping and accounting. We work together with you, analyze your business and give a report. We make sure you fully understand the accurate financial standing of your business to help you make informed decisions.
