Bookkeeping and accounting are often mistaken as meaning the same thing, but they’re not. The two concepts are intertwined and used for similar purposes, i.e., keeping and tracking financial records and performance, so we get where the confusion springs up from.
Sound knowledge and practice of bookkeeping and accounting are crucial to every business venture that wants to stay afloat. So it is necessary to understand that these two concepts are different and not just in the definition.
Understanding Bookkeeping
In simple terms, bookkeeping is a core part of the accounting process. It involves recording financial transactions of a business regularly, specifically daily, so it can be up to date and comprehensive. Accurate bookkeeping will provide reliable and correct data to prepare accounts that help your business make informed decisions.
There are two types of bookkeeping, i.e., single entry and double-entry bookkeeping. Some items to be recorded in bookkeeping involves:
- Items purchased
- Items sold
- Payments made to suppliers
- Payment of loans, etc.
What Accounting Is All About
Accounting is a series of activities that help determine an organization’s financial position, which leads to decision-making. It is the process of recording, analyzing, interpreting, and reporting a company’s financial transactions. Bookkeeping is the recording step in the accounting process, and it lays the foundation for the remaining operations.
Some other accounting activities in a business would include tracking costs and revenue, setting the budget, managing taxes, and ensuring compliance.
Accounting also has golden rules that determine how to enter data into accounts, and there are three types of accounts that accountants use when organizing data from the books. They include real, personal, and nominal accounts.
Bookkeeping Vs. Accounting
Bookkeeping and accounting are processes highly involved with each other, yet they also have to define differences hence the popular question ‘what is the difference between bookkeeping and accounting?’. Here I will highlight the major differences between bookkeeping and accounting.
- Decision making: Bookkeeping lays the foundation for every other accounting process, and so you must not take it lightly. The sorting and recording of the financial events and transactions in the business help the accountant prepare reports, and management can depend on these reports to make informed decisions. Bookkeeping does not involve writing reports. Nonetheless, if the recording process is inaccurate, then it affects the entire analysis.
- Activities: Bookkeeping focuses on cutting through the noise, arranging the mess, and keeping your books in order through sorting, categorizing, and recording financial transactions of your business. On the other hand, accounting involves analyzing, summarizing, interpreting, and communicating the financial transactions recorded in the books.
- Regularity: Bookkeeping is an activity that businesses should do daily. This helps to keep your books as current and up-to-date as they should be. However, accountants can prepare financial summaries or statements monthly or annually.
- Objective: Bookkeeping aims to keep a correct, current, and comprehensive record of a business’s transaction, while the goal of accounting is to assess a company’s financial status and then communicate that information to the management.
Getting Your Finances in Order
If you have financial goals for your business or organization, bookkeeping and accounting are crucial to monitoring your progress. Keeping records lets you know where you are on your business growth journey. Your books and accounts will also help your business pay the right amount of tax, save you from unnecessary fines, and make it easier to secure loans and gain investors.
Start your journey towards getting your books explicitly accurate and promote your business’ growth with 3Z ProBooks. Enjoy the best bookkeeping and financial management services from professionals who are passionate about helping you succeed.