Accounting Vs. Bookkeeping: What Are The Differences?

accounting-vs-bookkeeping

In finance, accounting and bookkeeping go side by side. They both have the same goal, and each requires basic accounting knowledge to work with financial data. While many people may confuse and use these two terms interchangeably, they are in fact different.    

Basically, accounting is the overall process, while bookkeeping is a step within that process. The accounting process involves recording, summarizing, analyzing, consulting, and reporting on a company’s financials. Bookkeeping is the recording step of that process, in which all of the business’s financial transactions (revenue and expenses) are recorded onto a database.

This article will explain how accounting and bookkeeping are not the same by highlighting 10 key differences. Before presenting a table of those differences, the definitions and scope of bookkeeping and accounting will be covered. 

What is bookkeeping?

Bookkeeping is the systematic process of recording and classifying all business transactions that occur while operating a business. All financial activities: sales, purchases, taxes, interest, payroll and other operational expenses, loans, investments are recorded in books of accounts. Bookkeepers post these transactions to the general ledger, which is then used while preparing a balance sheet.

Bookkeeping is an indispensable part of accounting and is primarily focused on tracking day-to-day financial transactions. Its purpose is to gather financial information and make sure that every record is correct, up to date, and complete. As a result, accuracy is critical to this procedure. The complexity of a bookkeeping system depends on the business size and the total number of transactions completed daily, weekly, and monthly.

Bookkeeping tasks

The responsibilities of a bookkeeper will vary depending on the model of your business. Here are some typical tasks for a bookkeeping position:

  • Recording financial transactions
  • Billing for goods sold or services provided to customers
  • Processing accounts receivable and accounts payable
  • Recording receipts 
  • Verifying invoices from suppliers
  • Completing payroll 
  • Maintaining and balancing subsidiaries, general ledgers, and historical accounts
  • Performing bank reconciliation

In short, bookkeeping is integral to the effective day-to-day running of a business. As bookkeepers’ primary responsibilities focus on organizing and recording financial transactions, they lay a solid foundation for accounting analysis. In other words, a business’s performance will go downhill if its bookkeeping system is not working properly. 

Read/check out these articles (from Shoeboxed) to learn more: 

What is accounting?

 Accounting is a broader concept than bookkeeping. Accounting is the process of reviewing, interpreting, and summarizing the financial records provided by the bookkeeping system to issue financial statements. A complete accounting cycle starts from recording business transactions and finishes by publishing financial reports at the end of a fiscal year. 

Accounting is also known as the language of business, as it helps stakeholders grasp the overall of a company’s financial performance. It tells you whether your business is making a profit, the current value of your assets and liabilities, where your money goes, and what changes should be made in the future. 

Accounting tasks 

An essential part of accounting is presenting financial information in the form of multipurpose financial statements (balance sheets, profit or loss statements, cash flow statements, etc.). These reports must adhere to generally accepted accounting principles, known as GAAP or US GAAP.

Below are some of the main tasks for an accountant: 

  • Reviewing and verifying financial data 
  • Analyzing operational costs 
  • Filing income tax returns, conducting tax planning and providing tax advisory services
  • Preparing financial statements
  • Ensuring regulatory compliance  
  • Assisting the business owner in making financial decisions
  • Undertaking financial audits 

It goes without saying that every business, regardless of size, needs accounting. Thanks to thorough accounting practices, managers and external stakeholders can fully understand what’s going on financially within the company, allowing them to make informed, strategic decisions for future growth.     

Read/check out these articles (from Shoeboxed) to learn more: 

Top 10 differences between bookkeeping vs. accounting 

Bookkeeping and accounting sometimes overlap each other, but the following are 10 major differences to help you distinguish between the two:

accounting vs bookkeeping: what are the differences
10 major differences between accounting and bookkeeping

Conclusion 

Bookkeeping provides accurate financial data for further analysis and interpretation to be performed by accountants. While bookkeeping and accounting are different, they both help businesses manage and control finance in a logical and systematic way. 

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Shoeboxed digitizes and extracts important data from receipts, invoices, and other accounting papers in just one click. With a proven, unique human-verified function, Shoeboxed guarantees every document is scanned thoroughly by a team of data experts to verify and make necessary corrections. 

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