Difference between Bookkeeping and Accounting

In financial terminology, the terms bookkeeping and accounting are used interchangeably. But, one should note that both these concepts are different. Bookkeeping is restricted to the recording of financial transactions. But, accounting also deals with the interpretation, analysis, reporting and summarization of financial data. Let us understand the difference between bookkeeping and accounting in detail.

What is Bookkeeping?

Bookkeeping refers to the process of systematically recording and classifying financial transactions of an organization for a financial year. It forms the basis of accounting. It focuses mainly on maintaining an accurate record of all the monetary or financial transactions of an organization. Correct and accurate bookkeeping is vital for a business as it provides reliable information about a company.

Process of Bookkeeping

The process of bookkeeping has the following steps:

1. Identifying a monetary or financial transaction
2. Recording a monetary or financial transaction
3. Preparing a ledger accounts for all the financial transactions
4. Preparing trial balance on the basis of ledger account balances

What is Accounting?

Accounting has a broader scope than bookkeeping.  Accounting is the language of business. It is a process of recording, measuring, summarizing, analyzing financial transactions and communicating financial information of an entity. Also, accounting determines and presents the financial position of a business to stakeholders. It helps the users of financial information such as investors, creditors, employees, and the government to assess the credibility of the business. It also helps in short and long term decision making.

Process of Accounting

Along with the steps of the bookkeeping process, the process of Accounting goes a step further and also includes:

1. Recording adjusting entries.
2. Preparing and analysing financial statements.
3. Assessing operational cost.
4. Filing tax returns.
5. Financial decision making

Difference between Bookkeeping and Accounting

Basis	Bookkeeping	Accounting
Meaning	It refers to identifying and recording monetary transactions.	It refers to the process of identifying, recording, classifying, summarizing, interpreting and communicating financial transactions.
Preparation of Financial Statements	Preparing financial statements does not fall under the purview of bookkeeping.	The accounting process involves the preparation of financial statements such as Trading, Profit and Loss A/c and Balance Sheet.
Helps in Decision making	It does not provide sufficient data for decision making.	It provides sufficient and accurate data for helping in the decision-making process.
Analysis	Bookkeeping does not require any analysis of data.	It helps in the process of analysis of data.
Financial position	It does not depict the financial position of the business.	It clearly depicts the financial position of the business.
Requirement of skill	No high level of skills is needed.	It requires a high level of skills for analyzing the financial data and using it for decision making.

The Shifting Landscapes of Bookkeeping and Accounting

Bookkeeping and accounting have been in practice for a very long time. Both these fields have undergone a remarkable amount of change. In future also, this trend of shifting landscapes will tend to continue in a similar fashion. Here are some of the upcoming shifts in these fields:

1. Merging Bookkeeping and Accounting Functions

With the introduction of the accounting and bookkeeping software, some functions of accounting are now slowly forming a part of the bookkeeping process. Also, bookkeeping software is now generating financial statements as well. Thus, the demarcation between bookkeeping and accounting is now diminishing.

2. Bookkeeping may become Obsolete

A bookkeeper makes data entries, balances bank ledgers and reconciles bank statements. But, slowly bookkeeping software will perform these tasks and the functions of bookkeeping will diminish and become obsolete.

3. Extending the Services

Newer technologies are providing value-added services such as payroll processing, credit card reconciliation, etc. with the help of the latest software. The bookkeepers and accountants need to be now open to technological advancements and explore emerging software options.

4. Advent of Smartphones

Smartphones have made the accessibility of business data very easy. Businesses are now shifting their operations online. Owners are keen to access the data from anywhere in the world on different devices. Thus, accounting and bookkeeping professionals need to ensure that the duly-generated reports are available online for their clients to access at all times.

5. More Efficient Services

The new technologies have made bookkeeping and tax preparation services more efficient and cheaper. Also, the analytical tools are an added advantage to the consultants and advisors.

FAQs on Difference between Bookkeeping and Accounting

Q.1. What are the types of accounting?

Answer. Generally, different types of accounting are as follows:

1. Financial accounting
2. Tax accounting
3. Cost Accounting
4. Management accounting
5. Public accounting
6. Government accounting

Q.2. What are the methods of bookkeeping?

Answer. On the basis of the volume of the financial transactions:

• Single-entry bookkeeping
• Double-entry bookkeeping

On the basis of revenue accrual:

• Cash-based
• Accrual based