There are a lot of jargon words thrown around in the financial world and the biggest question that most people have is what is the difference between bookkeeping and accounting? It’s a fair question: they both seem so similar and in finance, they’re used in a way that’s interchangeable. It’s important to know, however, that these are both very different concepts and while bookkeeping is about recording financial transactions, accounting does something very different. An accounting team deals with analysis, interpretation, reporting, and summarizing financial information of a business. In this article, we’re going to look at both bookkeeping and accounting and see what the differences are. 

What is Bookkeeping?

Bookkeepers work to record and classify all of the financial transactions of a business. It’s the basis of an accountant’s job, and yet accounting forms everything bigger than this in finance. Bookkeepers have to maintain very accurate records of the incoming and outgoings of the business. It’s this information that can help a business to make better decisions about their investments and finances, so accuracy really does matter. It’s critical for businesses to have the correct information, which is why accurate bookkeeping is a must. The steps involved in bookkeeping for a business include things like preparing ledger accounts, identifying financial transactions, and recording them, too. This has to be done regularly for a business to know what they can spend their money on. 

Bookkeeping is vital for a business so that they can keep their finances in order. Throughout the bookkeeping process, an accountant supervises this process and works with the bookkeeper to ensure that the numbers in the business are clear and defined. A record of all of the revenues of the business is provided by the bookkeeper and the company can tally the income and goals for their finances with the actual income and expenses. This enables the business to maintain their benchmark to future decisions, whether they use double entry bookkeeping or single entry bookkeeping.

 

What is Accounting?

Along with a bookkeeper, an accounting team will record, measure, and communicate financial information for the business. The accounting team helps to determine the financial position of a firm and present the same to any investors and stakeholders and it can help the business in their decision making. The best accounting team will be able to convey credibility to the market, too, and this is known as the language of business. Accounting is designed to offer a business owner a clear view of their finances and whether they can grow their business as planned or not. 

Accounting teams analyse, summarise, and interpret the financial data of the business, and the accounting team will check the bookkeeping records and make a financial report of the same so that the business leaders can make the best decisions. Accounting can help management to approach stakeholders to report finances, too. Professional accountants can take out the baseline of the data where finances are concerned and then send it to others for a further look. This report has a record of all of the financial transactions that take place, and it’s a summary of the operations of the firm. It can show the business their financial position and it tells a business owner whether they are in the right financial position at a particular time. Accounting also contains information about the firm’s cash flow.

What Are The Differences?

There are some main differences between accounting and bookkeeping, and these include:

  • Bookkeeping records the financial data systematically, but accounting analyses that data and prepares a report based on it.
  • Bookkeeping isn’t involved in management decisions regarding finances, but accountants can help management teams to make the right decisions regarding their financial future in business.
  • Reports prepared by an accounting team help to make further financial reports in the business, but bookkeeping teams don’t do that.
  • Bookkeepers are not required to have specific, special skills to handle bookkeeping, but accountants have to have a degree or a certification to practice. 
  • Records kept by bookkeepers are not analysed, but they are used by the accounting team to prepare reports and financial summaries.
  • Bookkeeping has two types: single-entry and double-entry. Accounting has cost accounting and managerial accounting.
  • Accountants supervise bookkeepers, but a certified accountant doesn’t require any further guidance.

Both of these teams are not exclusive of each other – they are both necessary for a business to function correctly. Both teams work to help a business with their finances and help them to make the best possible financial decisions.

Need help with your business’s bookkeeping? Bookkeeper Hub can help you save time and money with our Xero bookkeeping and training services. Contact us for more information.