Differences Between Bookkeeping and Accounting
The key difference between Bookkeeping and Accounting is that bookkeeping is the activity in which the company’s financial transactions are recorded in a systematic manner whereas, accounting is the process of recording, maintaining as well as reporting the financial affairs of the company which shows the clear financial position of the company.
They are often used interchangeably by most people. However, the two are not the same. Accounting is a much wider term as compared to Bookkeeping.
Bookkeeping is the recording and maintaining of all financial transactions which take place in a company.
Accounting is the recording, maintaining, analyzing and understanding, grouping, summarizing and reporting financial transactions that take place in a company. Bookkeeping is, therefore, the first step in Accounting.
Bookkeeping vs Accounting – Compare
|Sr. No.||Point of difference||Bookkeeping||Accounting|
|1||Starting point||The starting point for bookkeeping is the raw business data which needs to collected from different sources such as bank statements, cash register maintained by the cashier, material register maintained by the warehouse entry/exit gate, purchase team for various purchase orders and supporting documentation to record purchase, sale register maintained by the retail outlets too, etc.||The starting point for an accountant will be the books maintained/updated by a bookkeeper. Once the basic entries are done in the books, an accountant can use the data to analyze, summarize, group it further.|
|2||Key skills required||A bookkeeper is required to have a basic idea of bookkeeping and should be thoroughly well versed with concepts like journal entries, ledger accounts, the three types of ledger accounts, the effect of passing these journal entries on the company’s balance sheet.
Apart from that, other skills required are alertness, thoroughness when it comes to documentation and maintaining records in a systematic manner.
|Some of the key skills required by an accountant are:
Analytical skills, ability to take timely and measured decisions, thinking out of the box, being able to balance the risk & return trade-off for the company, understanding different revenue models, interpreting the financial statements, giving valuable suggestions based on experience and knowledge.
|3||Day-to-day routine activities||Day-to-day activities of a bookkeeper will involve the following:
||Day-to-day activities of an accountant will involve the following:
|4||Level of responsibilities||A bookkeeper is generally a part of the low/middle-level management in the organization. The ultimate responsibility is to maintain proper and updated books of accounts.
Note: Even though a bookkeeper does not shoulder very heavy decision making responsibilities, it should be noted that in the case of financial fraud, the bookkeeper can play a key role in manipulating the books. So a thorough background check should be done before recruiting a candidate in this role.
|An accountant is part of the middle-level management of the organization. Here, the responsibility is to present a true and fair view of the financial position of the company to various stakeholders.
Note: A thorough background check is required even in this case as the accountant is in a position to manipulate the financial results of the company.
|5||Computer knowledge||Accounting ERP used by the company will be the most frequently used computer tool used by the bookkeeper. Apart from that basic knowledge of Ms. Excel will be helpful.||Advance MS Excel, MS PowerPoint, accounting ERP used by the company,|
Interrelation Between Bookkeeping and Accounting
The two are inter-related and go hand in hand with each other. The job of the accountant will have no meaning if the bookkeeper has done incorrect journal entries in the books of accounts. Also, if there is no one to summarize and analyze the data prepared by the bookkeeper, it will have no value-added and the data will be junk after a point of time.
Another interesting way to look at the interrelation between the two (bookkeeping vs accounting) is that the accountants help to design controls, best practices, procedures, etc. for the bookkeeper which makes the process of bookkeeping and accounting easier. These controls will also help to eliminate errors, detect frauds/thefts, etc.
These internal controls which are set by the accountants can be as simple as a manual maker-checker system where a maker will prepare a document (e.g. a cash voucher) and get it approved by his / her superior. It can also be as complex as an inbuilt feature in the ERP which will highlight and disallow the creation of a duplicate vendor ledger by checking the unique company identification number.
This has been a guide to BookKeeping vs Accounting. Here we discuss the key differences and interrelation between bookkeeping and accounting. You may also have a look at the following articles –
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