Bookkeeping and accounting are often used interchangeably, but they are actually two separate but related processes. While bookkeeping deals with the recording of financial transactions, accounting is the process of analysing, interpreting, and reporting on those transactions. In this article, we will explore the difference between bookkeeping and accounting and how they are used in business.
Bookkeeping is the process of recording financial transactions in a systematic and organized manner. This includes maintaining records of all income and expenses, as well as all assets and liabilities. Bookkeepers use double-entry accounting to ensure that every transaction is recorded in two different accounts so that the books are always balanced.
In contrast, accounting is the process of analysing, interpreting, and reporting on the financial information recorded by the bookkeeper. Accountants use the information recorded by the bookkeeper to prepare financial statements, such as balance sheets, income statements, and cash flow statements. They also use this information to analyse the financial health of the business and make recommendations for improvement.
Bookkeeping is considered a more operational function of the business and typically is performed by a bookkeeper or an accountant working in an operational role. It includes tasks such as recording transactions, reconciling accounts, and preparing trial balances.
Accounting, on the other hand, is a more strategic function and is typically performed by a certified public accountant (CPA) or an accounting manager. It includes tasks such as preparing financial statements, analysing financial performance, and making recommendations for improvement.
In summary, bookkeeping is the process of recording financial transactions, while accounting is the process of analysing, interpreting, and reporting on those transactions. Both bookkeeping and accounting are essential for any business, as they provide the financial information needed to make informed business decisions. While bookkeeping is considered more operational and accounting more strategic, both are important for the overall financial management of any organization.
Article by Nagging Panda - 2023/03/07