Differences between bookkeeping and accounting: Keeping track of your financial transactions should be a major concern if you want to know how your small business is doing. Maintaining sound bookkeeping and accounting procedures for your small business has many benefits, from ensuring that tax returns are done correctly to projecting cash flow accurately.
But how do accounting and bookkeeping differ from each other? Finding the correct data and presenting the correct documents requires understanding the differences. The main distinction between the two is that with accounting, you or a professional must acquire financial information and organize it appropriately. A CPA (Certified Public Accountant) can help you dig deeper and review your financials if your business is large enough or if you need an extra look.
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What is Accounting?
Maintaining and documenting all financial transactions in the initial entry books of a business is known as bookkeeping. The accounting process consists of summarizing and organizing chronologically and methodically all the financial transactions of the company.
The day-to-day financial activities and transactions of a business are central to accounting. Account books are kept up to date and recorded by accountants. The original books of accounts contain a record of all financial activities, including tax payments, sales income, loans, interest income, salaries and other operating costs, investments, etc.
Since they serve as the basis for accounting, the books of accounts must be up to date. The accuracy of a company’s accounting procedures depends on the accuracy of the accounting.
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What is Accounting?
Accounting is the process of evaluating, analyzing, summarizing and reporting the financial transactions of a business. Financial statements created by accounting are an accurate overview of all financial activities during an accounting period. These financial statements provide an overview of a company’s operations, cash flows and financial condition.
Accounting combines financial data to make it transparent and intelligible to all parties involved. It helps companies maintain up-to-date and accurate financial records.
The accountant maintains and compiles the records of the daily activities of a business in the financial statements, including the income statement, cash flow statements, and balance sheet. All stakeholders can assess a company’s performance using financial statements.
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Differences between bookkeeping and accounting
1. Definitions: Accounting vs Accounting
The definitions of bookkeeping and accounting are where the first important distinction is. The act of collecting, organizing, storing and accessing an entity’s financial information base is called record keeping. It serves as the cornerstone for creating financial statements, tax returns, and other important reports. It is essential for the day-to-day operations of the business. Accounting, in its simplest form, is the practice of documenting financial transactions.
The field of accounting is broader than that of bookkeeping. The “systematic process of detecting, documenting, measuring, categorizing, verifying, summarizing, analyzing, and reporting financial information” is what accounting is described as. In other words, accountants learn to explain to important business stakeholders what financial data means, in addition to simply recording transactions.
An accountant, for example, can produce reports on the current financial condition of the organization, which can then help the owner or manager make sound business decisions moving forward.
2. Objectives: It seems natural that since bookkeeping and bookkeeping are considered two separate procedures, their ultimate goals also vary. The main objective of an accountant is to meticulously, analytically and methodically record all financial transactions. In general, accountants document these financial transactions in chronological order. They use one of two main record keeping systems which we will discuss in more detail later.
The basic purpose of an accountant is to check the financial condition or health of the business and communicate this information to important stakeholders. Therefore, accountants largely focus on analyzing and interpreting all the financial data that has been collected rather than the day-to-day activities of bookkeeping (although they are necessary).
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3. Scope of work: The following tasks may be part of bookkeeping responsibilities:
a. Repay bills when they become due.
b. Send invoices to customers
vs. Collect sales taxes, then send them to the government.
D. Record receipts.
e. Put money in the bank.
F. Perform monthly bank account reconciliation.
g. Regularly reconcile all accounts to ensure accuracy and completeness.
h. Keep petty cash active.
I. Maintain a well-organized accounting file system
J. Keep the annual budget in place.
k. Manage payroll consistently and on time
I. As needed, provide clerical and administrative assistance.
More important tasks are included in accountant responsibilities.
These could include the following steps:
a. Read and correctly interpret financial documents
b. Ensure that the company fully complies with all applicable state and federal laws
vs. Provide business leaders with specialized financial advice
D. Prepare tax forms and research strategies to pay as little tax as possible
e. Preparation of financial statements
F. Provide reports to important stakeholders
g. Establish a rigorous accounting structure to prevent fraud or theft
h. Direct the activities of accountants
Although there is often a great overlap between bookkeeping and accounting responsibilities, accountants are primarily concerned with using company financial data to make informed business decisions, while accountants focus generally on the daily maintenance of financial data.
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4. Skills required: Most professions do not require a specialized skill set or an advanced degree. However, accountants must be excellent in simple algebra and arithmetic, extremely organized and detail-oriented, and meticulous in their work to avoid mistakes.
The National Bookkeepers Association can certify accountants (NBA). Additionally, they can acquire a license from the National Association of Certified Public Accountants to practice as a Certified Public Accountant (NACPB).
A bachelor’s degree in accounting or a degree in a similar field, such as internal auditing, is usually required for accounting jobs. Proficiency requirements exist for several accounting professions.
In order to earn their CPA qualifications, accountants frequently choose to take the Uniform CPA Examination (CPA). Most state boards require that before an accountant is allowed to take the test, they must have two years of work experience.
After earning their certification, CPAs must regularly take continuing education courses and renew their license to keep current with laws and practices.
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5. Types of bookkeeping and accounting: Single-entry and double-entry are the two basic forms of accounting procedures. In single-entry systems, each transaction involves a single record. They are mainly focused on activities involving cash receipts and payments. The possibility of fraud is significant despite the simplicity of the method of record keeping since the accounts cannot be reconciled.
For each transaction in a double-entry system, two records are kept: one for each account credited and one for each account debited. The double-entry approach is significantly more complicated than the single-entry method, but it follows GAAP and is therefore safer and more extensive in its use. A wide range of crucial tasks are covered by accounting roles, as opposed to the two basic accounting types listed above.
These include the following accounting disciplines:
b. Forensic accountants responsible for scrutinizing financial data to identify omissions, errors or fraud
vs. Third-party auditors provide protection against fraud and embezzlement.
D. Staff accountants are referred to as specialists in the accountancy profession.
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Although there are important distinctions between bookkeeping and accounting, both of these functions are essential to the long-term success of the business. Of course, in order to take full advantage of these services, it is crucial to fill both jobs with highly qualified and experienced people.
Edeh Samuel Chukwuemeka ACMC, is a law student and certified mediator/conciliator in Nigeria. He is also a developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is determined to change the legal profession by creating web and mobile applications that will make legal research much easier.