As two of the most important business activities undertaken by any organization, accounting and bookkeeping form the backbone of the financial sector. However, given the many similarities between the two activities, people often use the two terms interchangeably. Financial planning, internal tax service, profit and loss analysis are part of accounting. This blog will help to clear up some of the confusion around these business activities and highlight the differences between Bookkeeping and Accounting.
Differences between Bookkeeping and Accounting
- Scope of Work: The main difference between bookkeeping and accounting lies in the scope of the work. Bookkeeping involves the recording of transactions and financial data in a systematic manner. Accounting, on the other hand, adopts a broader approach that includes analyzing financial data for a deeper understanding of the financial soundness of a business.
- Decision Making: Broadly speaking, since bookkeeping only makes a record of the financial transactions and the data, it does not really contribute to the decision making process. Whereas accounting helps to understand the financial repercussions of business activity and hence is an integral part of the decision-making process of a company.
- Tools Used: The tools and documents used for bookkeeping and accounting are different because the ultimate goal of both these services is different. When it comes to bookkeeping, people frequently use journals and ledgers to record the transactions. Accounting uses additional tools such as balance sheets, cash flow statements, profit and loss reports, and so on.
- Financial Statements: Even though bookkeeping involves recording transactions, it does not include the preparation of any financial statements. Accounting services, and those associated with it, such as internal tax service, always include preparation of detailed financial reports that will help you get a feel for the financial situation of a company or enterprise.
- Business Overview: One primary difference between bookkeeping and accounting is that accounting provides a detailed overview of the state of a business, especially in terms of its finances. Even though bookkeeping may not reflect the financial standing of the company, it is still an essential part of your business and should be treated as such.
- Skills Required: In very simple terms, bookkeeping is a lot like data entry and does not necessarily require particular skills since you only record the transactions. When you are engaged in accounting, you will need a particular set of skills to analyze the data and understand the transactions so that you can draw the necessary conclusions.
- Different Types: Bookkeeping is mainly divided into two types, Single Entry Bookkeeping and Double Entry Bookkeeping. These methods are used for recording transactions for your business. Accounting includes multiple disciplines, the most important of which are Financial Accounting, Management Accounting and Tax Accounting. You will also find services, like internal tax servicethat specialize in one type of accounting, i.e. Tax Accounting.
- Sub-Divisions: Given that accounting takes up a wider approach to financial planning and business management, it is no surprise that bookkeeping is a subcategory of accounting. It is often said that bookkeeping is the foundation of accounting. Without bookkeeping, you will not have the necessary data needed to complete your accounting tasks.
If you would like to learn more about accounting and bookkeeping you can visit the internal tax service (ITS LLC) website or get in touch with a trained professional to clear your doubts.