Difference between Bookkeeping and Accounting: Lesson 1

Though Bookkeeping and Accounting seems to be similar in nature, they are different in many ways.  Bookkeeping and Accounting are part of any business transaction.  All the business transactions start with Bookkeeping of transactions and end with Accounting of transactions.  Let’s see the differences between bookkeeping and accounting:

·       Bookkeeping is the first stage in Accounting.  It is the process of recording transactions involving cash, bank, sales, purchase, etc.  Accounting process is a broad one which involves classifying and summarizing of the business transactions. 

o   For example, goods sold to Sam, this transaction is recorded as journal entry is called bookkeeping. Classifying the two accounts involved in this transactions is Accounting, sale of goods is revenue and Sam is a debtor for the business.  Revenue is shown in Profit & Loss Account and Sam as a debtor is shown in the Balance Sheet.

·       Bookkeeping doesn't need any special knowledge or skill.  Any clerk can record transactions in a predefined format.  Accounting needs the knowledge of classifying, summarizing and preparation of various financial statements.  An Accountant needs to give reports according to the needs of Management. He also needs to make various adjustments in order to made financial statements in the prescribed format as required by Acts and Laws of different countries.

o   Based on the above example, goods sold to Sam, a clerk can be taught what to be debited or credited and the modern ERP systems are good enough to take of the recording these transactions in a simple way.  But Accounting helps to report to the management how much is sales is made, how much is the outstanding on a particular date.

·       Bookkeeping tells you only the number of transactions recorded in a particular period. But Accounting gives you the true picture of the financial position of business. 

·       Bookkeeping is merely journal records of transactions.  Accounting has many financial statements like Profit & Loss Account, Balance Sheet, Cash Flow Statement, Funds Flow Statement, etc.

·       Bookkeeping needs only basic qualification to record transactions.  Accounting needs professional qualification like Chartered Accountants, Cost Accountants and degrees in commerce and accounts.

·       Bookkeeping has only recording department.  But Accounting has different departments like Financial Accounting, Management Accounting, Tax Accounting, and Cost Accounting.

o   For example, the data entry team can take care of recording the transactions, whereas cost departments helps for costing the goods and services.