The key differences between accounting vs bookkeeping
Bookkeeping vs accounting are two different departments dealing with company financial accounts. Bookkeeping is the first step, during which we keep records of income and expenses, while in the accounting department, accountants analyze the financial situation of the company and write reports. Both are very important for the good management and financial success of a business owner.
The distinctions between accounting and bookkeeping are subtle but important to understand when considering a career in either field. So what is the difference between accounting vs. bookkeeping and accountant vs. bookkeeper? Let’s find out all in this article!
What is accounting?
The purpose of accounting is to inventory all the financial flows generated by a company. These flows may result from gains or from economic, commercial, or even material expenditure. It offers a concrete vision of the evolution of a company's value by producing two documents at the end of each year: the balance sheet and the income statement.
Which company should keep general accounts?
All companies carrying out a commercial, craft, industrial or liberal activity are required to keep general accounts. Other entities benefit from arrangements such as the liberal professions who exercise their job as a sole proprietorship. The latter can then keep cash accounts, a simpler method since it involves recording only all receipts and disbursements.
There are three principal documents. The first is the income statement, which summarizes the profit and charges of the companies. The second is the balance sheet, which looks like a photo of the company's assets. The third is the annex. This provides additional information that allows an in-depth reading of the balance sheet and the result. The annex is more or less precise (basic, simplified, or abbreviated annex) depending on the form and tax regime of the company.
What is bookkeeping?
Bookkeeping consists of recording all entries and exits from company accounts, including credit and debit. It includes details of all business transactions, both with customers and with suppliers, employees, and tax authorities. In short, it lists all financial activities.
Why do we have to do it?
Bookkeeping is an essential service in accounting. The keeping of accounting books is above all a legal obligation. The law requires companies to be accountable to tax authorities to verify whether they are indeed paying taxes as they are required to.
By keeping accountable books, shareholders and entrepreneurs can also take the pulse of the business. For example, they can check whether it is meeting its objectives, whether its economic growth is on the way up or down, or whether it is sufficiently profitable.
The difference between accounting vs bookkeeping
Accounting and bookkeeping are both used for recording financial transactions. It’s difficult to distinguish between accounting and bookkeeping. The most different parts are technical differences.
The two are different sections of the finance department, bookkeeping involves keeping a systematic record of the financial transaction of the company, while accounting is the next section, which studies these records to prepare different reports and proposals.
Bookkeeping is the procedure, which helps management to manage the day-to-day financial health of the business, while accounting justifies these financial actions and finds their reasons.
In large companies, the accounting department is also very important to look over the tax of companies. It’s complex work, so it requires lots of special competencies. On the other hand, one individual usually does the bookkeeping or at most two people are involved in this task, even in large companies. This doesn’t require any analytical ability.
There are 2 types of accounting:
- General accounting (for external actors)
- Cost accounting (for internal actors)
There are 2 types of bookkeeping:
- Single entry: records only the expenses and the receipts, while the commitment accounting concerns the charges and the profit.
- Double-entry: is a method of recording entries, where the amount of a transaction is entered simultaneously to the credit of one account and the debit of another.
|Definition||Accounting deals with the organized recording, reporting, and analysis of a company's financial health.||Bookkeeping records the financial transactions of a business or an individual is in accounting, like sales, purchases, earnings, and expenses. Traditionally it is called as bookkeeping since the records were kept in the journal, the ledger, the cash book, …|
|Function||Analyze these records to prepare different reports and proposals||Record all the financial activity of the company|
|Types||Single and double entrance||General accounting and cost accounting|
|Skill required||Special accounting competence due to the complex task||This doesn’t require any analytical ability|
|Importance in the decision-making process||Based on the results, the accountants can make a critical decision||The accountants can’t make a critical decision with the bookkeeping|
What about accountant vs. bookkeeper?
With accountants, there are a lot of minutiae involved, and great attention to detail is paramount. Meanwhile, bookkeepers tend to use the inputs of the accountant to create financial statements and periodically review and track financial information recorded by accountants. They perform audits and forecast future business needs.
The two careers are pretty similar, and accountants and bookkeepers often work side by side. These careers require many of the same competencies and attributes. However, differences exist, such as the work performed in each career and what is required to hire the right person.
|Education required||Getting a job in accounting requires, in most cases, more education and degree than becoming an accountant such as a CPA (Certified Public Accountant).||You can become a bookkeeper right out of high school if you prove you're good with numbers and pay close attention to detail.|
|Required Skills||Calculations, mathematics, strong logical, and comprehensive problem-solving skills.||Bookkeepers have to make sure small pieces fit together properly.|
|Starting salaries||Public accountancy usually pays the most to a candidate right out of school. Depending on the city, a professional accountant who had the experience can expect to make between $ 40,000 and $ 60,000 as a Big Four accountant.||Bookkeepers often receive an hourly wage rather than annual wages. The average salary for a new person in the company is $ 20 an hour. This is the equivalent of about $ 40,000 per year, assuming a 40-hour workweek.|
|Employment prospects||Job growth for accountants is expected to follow fairly closely with the economy as a whole. However, accountants will face the pressure of software automation and technology that will reduce the demand for these workers.|
Bookkeeping and accounting are essential to the proper functioning of any business. Bookkeeping is essential because it is the first step in keeping financial records and accounting is building an analysis based on the brick of bookkeeping.