Difference between Bookkeeping and Accounting

Today we learn the difference between Book Keeping and Accounting, we think these terms are same, but this is a false statement. Both are the different terms but connected to each other. Today we discuss about both these terms and let's find out how they are different. Since, the number of transactions involved in a business are large in number, it becomes a difficult task for the entrepreneur to keep track of each and every business transaction. Therefore, it would be necessary for any business to keep a record of those business transactions. At this step recording of business transactions becomes extremely important. Thus a business need to have a systematic and accurate record of various transactions which are financial in nature over the course of given period. If there is no such system, then it would never be able to know the outcome of business activities. So, for performing this system in a systematic manner Bookkeeping and accounting took place. So Let us understand Bookkeeping and Accounting practices in detail.

We Learn- 

• Meaning and definition of Accounting
• Meaning and definition of Book Keeping
• Nature of Bookkeeping/Role of a Bookkeeper
• Difference between Book Keeping and Accounting

Meaning and definition of Accounting

Meaning of Accounting-

Entrepreneurs use accounting to record each and every transaction which are financial in nature and that can be measured in terms of money undertaken in a specified period of time. The ultimate goal of undertaking business activity is to generate profits. Thus, the business owner needs to know the financial status of the business whether the business is growing profits or losses in a specified period of time. There are two types of accounting systems to record business transactions( Double Entry System of Accounting and Single Entry System of Accounting), but Double Entry System of Accounting are using worldwide because it is more reliable and accurate. This is where the accounting helps a business owner in understanding the impact of various business transactions into the business.

Definition of Accounting-

•  Accounting is the process of collecting, recording, classifying, summarising the financial transactions and events and communicate the final results to the users. 

• Accounting contains the full process of collecting the financial transactions, record those transactions, then classify and summarise the recorded transactions and after the interpretation of results communicate the final position to the users. 

• According to American Institute of Certified Public Accountants "Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money; transactions and events which are, in part at least, of financial character, and interpreting the results thereof"

👉Also read Accounting basics Explained.

👉Also read Systems of Accounting and Accounting Information System(AIS)

Meaning and Definition of Book Keeping

Meaning of Bookkeeping-

Book keeping is a part of accounting because it includes recording of financial transactions and events in a systematic manner in the books of accounts.

Bookkeeping is connected with recording of the data related to business transactions in a systematic manner. These transactions need to be identified, classified, summarised and recorded. This should be done in such a way that the recorded transactions can be presented in the form of financial statements and other reports towards the users.

Definition of Bookkeeping-

• Bookkeeping is the routine, systematic method of recording financial information, categorizing that information, inputting it into an accounting system, and generating reports which are used by users of Accounting Information or decision makers. Or Simply said Bookkeeping is connected with the recording of past Financial data which is used to make future business decisions.

• Bookkeeping is an art and science of correctly recording the financial business transactions in the  books of accounts.

 

Book keeping includes the below mentioned process:-

• Identifying financial transactions and events
• Measuring them in money terms
• Recording the identified financial transactions and events in the books of accounts
• Classifying recorded transactions and events

So, after understanding both the definitions we get to know these two terms are different from each other Accounting contains book keeping, but accounting is a wider concept than book keeping. Accounting contains full procedure(beginning to result) while book keeping only work till posting the transactions into accounts. Without Book keeping accounting is incomplete, accounting starts where book keeping ends. let's see the difference in detail as under:-

Nature of Bookkeeping/Role of a Bookkeeper

Bookkeeping is a system to record the various financial business transactions in a systematic way-

• Collecting financial information which is associated with the business.
• Identifying and measuring those transactions which can be measured in terms of money.
• Recording those transactions in order of their occurence.
• Classifying each transaction into different heads according to it's nature like sales, purchase etc.
• Preparing Trial Balance of each head to check the accuracy of recorded transactions.

👉Also read Generally Accepted Accounting Principles explained

👉Also read Journals & Ledgers Explained

Difference between Book Keeping and Accounting

S.no.	Basis	Bookkeeping	Accounting
1	Scope	Book keeping is related to collecting the financial transactions, measuring them   in terms of money, recording them in the books of accounts and classifying them.	Accounting starts where book keeping ends, accounting concerned with summarising the recorded transactions, analyse and interpret them and communicate the results to the users.
2	Stage	It is a primary stage and it is the base of accounting.	It is a secondary stage, it begins where book keeping ends.
3	Objective	Maintain proper and systematic records of financial transactions	Determine net profit and loss and ascertain financial position of business and communicate to the related parties about the position.
4	Nature of Job	Book keeping is done at daily basis and it is routine in nature	Analytical and dynamic in nature
5	Level of Performance	Performed by Junior staff	Performed by senior staff
6	Accounts	In Bookkeping Journal, Ledger and Trial Balance are prepared	Profit and Loss statement, Balance sheet and Cash Flow statements are prepared under Accounting.

So, I Hope guys you all get the information about Difference between Bookkeeping and Accounting and also you got the point that Both are the different terms but connected to each other. Accounting starts where Bookkeeping ends, we cannot reach at the financial results without these systems. So, it becomes important to understand the concept of accounting and bookkeeping. If you have any queries regarding Difference between Bookkeeping and Accounting  then please stay tuned on comment section or you can E-mail me also for further related queries.