Both accounting and bookkeeping processes are equally important for an organisation. Some people consider both of them the same but it is not like that, there are many differences between accounting and bookkeeping. There is a lot of confusion between these two concepts among the people, hence it is important to clear out their differences. They are two different concepts that have different roles and responsibilities in the growth of an organisation. Accounting is of two types : management and financial accounting.
Similarly, bookkeeping is also of two types that are single and double-entry bookkeeping. The current blog will discuss the differences between accounting and bookkeeping services in detail. Understanding them is crucial because these two concepts have very much importance with respect to the growth of an organisation.
Meaning of Accounting and Bookkeeping
Although there are a lot of differences between accounting and bookkeeping, they are very important for an organisation altogether. While achieving the success of an organisation, both play important roles, and one cannot ignore any of them. Let us understand them one by one before understanding the differences between accounting and bookkeeping.
What is Accounting?
Accounting means details of all the finances of the company. Here, financial information includes information related to the sales, purchase, profit, loss, cash flow, salary or incentives of the employees, company-related expenses like company’s compliances, etc. Financial statements of the company reveal every major or minor finance-related information of the company. In accounting, a number of things included preparing to adjust entries, reviewing the financial statements of companies, analysing the operational costs, financial forecasting, and budgets, finishing the income tax returns and helping the owner of the businesses while understanding the effect of financial decisions.
What is Bookkeeping?
Bookkeeping means maintaining all the records related to all the financial transactions of the company or an organisation. For example, bookkeeping involves maintaining sales and purchase data of the company, furnishing with the legal and statutory compliances of the companies, etc. Identifying and recording a monetary transaction, processing invoices and purchase orders, preparing ledger accounts for all the monetary transactions, etc., are also part of the bookkeeping of an organisation.
Key Differences Between Accounting and Bookkeeping
For a layman, both bookkeeping and accounting seem similar, but on the other hand, a professional can make various differences between accounting and bookkeeping. Some of the important differences between accounting and bookkeeping are given below in the table:
| Particulars | Accounting | Bookkeeping |
| Definition | The practical implication of the financial data of the company is called accounting. | Maintaining and recording the financial data of the company is called bookkeeping. |
| Decision making | Accounting helps an organisation make important decisions regarding the organisation. | Bookkeeping does not help an organisation while making important decisions regarding the organisation. |
| Objective | Accounting has a wider objective and helps in the growth of the organisation directly or indirectly. | Bookkeeping is just for the purpose of recording financial data, which will be helpful in accounting. |
| Financial statements | Financial statements are part of the accounting process. | Financial statements are not part of the bookkeeping |
| Skill or specialisation | Accounting has a lot of complections hence requires a special set of skills and specialisation in the particular field | Bookkeeping does not require any type of skill or specialisation. It can be done by anybody |
| Analysis | Accounting needs to analyse the recorded information while bookkeeping of the company’s financial information. | In bookkeeping, there is nothing like analysis. It is just a simple recording of the financial information of the company. |
| Types | There are two types of accounting. | There are two types of bookkeeping. |
| Professionals | Accounting needs to be done by accountants | Bookkeeping will be done by the bookkeepers |
| Level | Accounting is a difficult task, and its management is complicated | Bookkeeping is easy and can be managed without any complications |
| Contribution | Accounting has more contribution to the growth and development of the company or organisation | Bookkeeping has a larger role to play in accounting. Without proper bookkeeping, accounting cannot be done |
Benefits of Accounting and Bookkeeping
There are a number of benefits of accounting and bookkeeping for an organisation. Some of those benefits or advantages are given below:
- Proper maintenance of the financial records of the company
- Proper analysis of the financial information of the organisation
- Risk management of the company
- Helps while completing the compliances of the company or organisation
- Helps in the growth as well as development of the company
- Maintain the records regarding the revenue of the company
- Helps in proper bifurcation of the finance of the company
- Recognise whether a company is in loss or profit
- Helps in the budgeting of the company
- Maintains income and expenditure of the company
Outsourcing of Accounting and Bookkeeping
Accounting and bookkeeping play a very important role in the development of any organisation. Hence, proper maintenance of both of them is necessary. Although there are a lot of differences between accounting and bookkeeping, their importance is similar to an organisation. Accounting needs to be maintained by a professional having experience and educational background in a similar field. Higher accountant is an extra cost for any organisation; hence, most organisations prefer to outsource both accounting and bookkeeping. Accounting and bookkeeping Outsourcing services is cheaper than hiring a professional in-house. Therefore, most companies prefer to outsource their accounting and bookkeeping services.
Conclusion
There are many differences between accounting and bookkeeping, yet they have interconnected functions within an organisation’s financial management system. Bookkeeping is more focused on the detailed recording of financial data and does not involve the analysis typically associated with accounting. It is a more straightforward and routine process that can be performed by individuals without specialised training.
On the other hand, accounting serves a broader purpose in guiding the organisation’s growth and strategic decisions, while bookkeeping is the foundational process that provides the data necessary for accounting analysis. Both functions are essential for maintaining financial records, ensuring compliance, and facilitating the overall success and development of an organisation.
