The terms bookkeeping and accounting are considered as synonyms. However, there are lots of differences between these two terms. Bookkeeping is concerned only with the recording of financial transactions, while accounting is concerned with recording, classifying, summarizing, and communicating results thereof to the users of financial statements. Transactions recorded during bookkeeping are base for carrying out accounting activities.
Let’s go through the definition of bookkeeping & accounting and understand the major difference between accounting and bookkeeping.
Definition of Bookkeeping
Bookkeeping is an activity concerned with recording & classification of financial transactions related to business operations regularly in a systematic manner.
Following activities are performed during the bookkeeping process:-
- Identification of financial transactions related to business
- Recording of transactions in books of accounts
- Classification of recorded transactions to the appropriate ledger accounts
- Preparation of trial balance.
Definition of Accounting
Accounting is a process of recording, classifying, summarizing, analyzing, Interpreting business transactions or events of a financial character, and communicating the results thereof to the Users of Financial Statements.
Following are 6 steps for the accounting process:-
On reading the above 6 steps you will notice that the first 2 steps (i.e. recording and classification) are also part of the Bookkeeping process. Hence, it can be said that the bookkeeping is a subset of accounting.
Now lets check the major difference between accounting and bookkeeping.
Difference between Accounting and Bookkeeping
|Meaning||Bookkeeping is mainly concerned with the identification, Recording & classifications of business transactions.||Accounting includes recording, classifying, Summarizing of financial transactions, Interpreting and communicating results thereof to users of financial statements.|
|Person Responsible||Bookkeeping is performed by bookkeeper as well as accountants||Accounting can only be performed by professional accountants.|
|Preparation of Financial Statements||The financial statements are not prepared under the bookkeeping process||Financial statements are prepared under the accounting process based on data available from Bookkeeping records|
|Decision Making||Management can’t make decisions based on bookkeeping records||Management makes decisions based on accounting records.|
|Sub-fields||There are no sub-fields of bookkeeping||Accounting has many sub-fields such as management accounting, Financial accounting, Human resource accounting, Cost accounting, etc.|
|Financial position of Business||The financial position of Business cannot be determined with the help of bookkeeping records||Accounting records depict the financial position of business|
|Journal, ledger, Trail balance||Income statement (Profit and loss account), Cash flow statement, Balance sheet.|
It can be mentioned that above stated difference between accounting and bookkeeping are just theoretical and will not prevail in practice as professional performing both the tasks can be same.
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