Every business needs a bookkeeping system based on established accounting principles. However, accounting is a much broader term than bookkeeping. Bookkeeping refers mainly to the record-keeping aspects of accounting; it's essentially the process of recording all the information regarding the transactions and financial activities of a business.
Defining bookkeeping
Bookkeeping is an indispensable subset of accounting. Bookkeeping refers to the process of accumulating, organizing, storing, and accessing the financial information base of an entity, which is needed for two basic purposes:
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Facilitating the day-to-day operations of the entity
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Preparing financial statements, tax returns, and internal reports to managers
Bookkeeping (also called recordkeeping) can be thought of as the financial information infrastructure of an entity. The financial information base should be complete, accurate, and timely. Every recordkeeping system needs quality controls built into it, which are called internal controls.
Defining accounting
The term accounting is much broader, going into the realm of designing the bookkeeping system, establishing controls to make sure the system is working well, and analyzing and verifying the recorded information. Accountants give orders; bookkeepers follow them.
Accounting encompasses the problems in measuring the financial effects of economic activity. Furthermore, accounting includes the function of financial reporting of values and performance measures to those that need the information. Business managers, investors, and many others depend on financial reports for information about the performance and condition of the entity.
Accountants design the internal controls for the bookkeeping system, which serve to minimize errors in recording the large number of activities that businesses engage in. The internal controls that accountants design are also relied on to detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds.
Accountants prepare reports based on the information accumulated by the bookkeeping process: financial statements, tax returns, and various confidential reports to managers. Measuring profit is a critical task that accountants perform — a task that depends on the accuracy of the information recorded by the bookkeeper. The accountant decides how to measure sales revenue and expenses to determine the profit or loss for the period.
Hopefully, this post will clear up any questions you have had about the actual difference between accounting and bookkeeping. However, if you still have questions about the differences, take a minute to read the Wikipedia post on Bookkeeping and Accounting.
So what do you consider yourself, if you are in this field, an accountant or a bookkeeper? We look forward to your answers and also to your feedback on our post.
Have a great day!
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