Know everything about Book Keeping and Accounting

Last Updated On: Nov. 19, 2021, 8:29 p.m.
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ACCOUNTING VS BOOK KEEPING

What is Accounting?

Accounting refers to recording financial transactions which includes summarizing, collecting, reporting, storing and presenting the outcome in various reports and analysis.  Accounting focuses on presenting the financial information  which includes balance sheet, income statement, etc. Accounting focuses on providing a company's management with the information needed to keep the business financially healthy. Although some of the information comes from recorded transactions, many of the analyses and reports include estimated and projected amounts based on various assumptions. 

It helps a business in the short and long term decision making. The purpose of accounting is to have a clear picture financial statements to its investors, creditors, employees and government.

Process of Accounting

  • Identifying financial transactions
  • Recording of financial transactions
  • Preparing ledger accounts
  • Preparation of trial balance
  • Preparation of financial statements
  • Analysis of financial statements

 

What is Book Keeping?

Book Keeping is a process of recording and organizing all the business transactions that have occured in the course of business.Book Keeping is an integral part of accounting and focuses on recording day to day financial transcation of the business.

All the financial transactions such as sales earned revenue, payment of taxes, earned interest, payroll and other operational expenses, loans investments etc. are recorded in books of accounts.

 

 

Process of Bookkeeping

  • Identifying financial transactions
  • Recording of financial transactions
  • Preparation of ledger accounts
  • Preparation of trial balance

 

Let us know the difference between book keeping and accounting below:

 

Sl.No Particulars Book Keeping Accounting
1. Definition Bookkeeping deals with identifying and recording financial transactions only Accounting refers to the process of summarising, interpreting and communicating the financial data of an organisation.
2. Decision making Data provided by bookkeeping is not sufficient for decision making Management can take important decisions based on the data obtained from accounting
3. Objective The objective of bookkeeping is to keep proper and systematic records of financial transactions. The objective of accounting is to ascertain the financial position and further communicate the information to the relevant parties.
4. Preparation of Financial Statement Not applicable in case of book keeping Financial statements are a part of the accounting process
5. Persons Involved The person concerned with bookkeeping is known as a bookkeeper The person concerned with accounting is known as an accountant
6. Analysis No analysis is required in the bookkeeping Accounting analyses the data and creates insights for the business
7. Determining Financial Position Bookkeeping does not show the financial position of a business Accounting helps in showing a clear picture of the financial position of a business
8. Level of Learning No high-level learning required High-level learning required for understanding and analysing accounting concepts

 

 

Roles and Responsibilities of a Bookkeeper

  • To look out for financial data and identify economic transactions for a business.
  • To distinguish between material economic activities and immaterial economic activities.
  • To record events measured in monetary terms, in an orderly manner in a journal or other subsidiary books.
  • To properly maintain the required books of original entry.
  • To produce required bills and invoices with reference to transactions.
  • To post all debits and credits in the general ledger.
  • To prepare the bank reconciliation statement.
  • To follow and report on budgetary compliance.
  • To follow due diligence in following the generally accepted conventions of recording and maintaining books of accounts.

 

Roles and Responsibilities of an Accountant

  • To examine the recorded transactions in order to check the efficiency of the records.
  • To suggest adjustment entries if any error is present in the bookkeeping process.
  • To analyze the trial balance in order to prepare the financial statements.
  • To prepare the Trading as well as Profit and Loss account to capture the profitability of the business.
  • To gauge the income tax and other compliance-related requirements of the company.
  • To interpret the financial statements in a way that can be useful for business decision making by the owners and other stakeholders.
  • To communicate necessary accounting information to the internal as well as the external users.
  • To provide consultation and insights to the owners to help them make an informed decision.
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