People usually get confused with the difference between bookkeeping and accounting. In most simple words, bookkeeping deals with keeping all the transactional records in the form of data in any business. Whereas accounting means generating insights from the same data kept by the bookkeepers. This insight is all about understanding profit, loss, and weakness in the business. It too helps in making future decisions based on the insights. The further points would make it more precious to understand the difference between bookkeeping and accounting in this post.
What is Bookkeeping?
The simple definition of Bookkeeping can be understood from the word itself. It is made from two words: book and keeper. In every book there are multiple chapters and sections organized with the notation of page numbers. Similarly, In every business financial transaction, the demand and supply of products and services are stored in the form of financial chapters. These sections can be anything like the total number of money spent in buying a product A in date XYZ or the total amount of capital spent in processing payroll in the month of January. All this work needs to be stored and updated in a specific excel sheet, spreadsheet or software. This work is done by bookkeepers which are provided by a financial solutions company.
What is Accounting ?
Accounting in simple means decision making with respect to amounts. The data of amount spent and utilized are already recorded by bookkeepers, the role of accountants is to guide the business person in making proper decisions. Let’s understand it using a simple example, suppose you buy a product at $50 and sell it at $55. What does it represent ?. It means that you made a profit of $5. Here, you made a decision to keep buying the same product again and proceed further to make money. It is a simple example of decision making based on looking into amounts. But, what if there are hundreds of products with different price ranges making profits and losses from different locations with different margins. Similarly, there are a lot of complications that have to be sorted out before investing money into business. All such barriers can be resolved using accounting services provided by financial solutions agencies.
Which One to Choose?
Understanding the difference will make you clear about hiring either Bookkeeping or Accounting services or both for your business. If you are someone who has personal experience of using accounting tools and has knowledge to generate insights on your own then you can go for hiring bookkeeping services. The alternative is true for hiring accounting services to precise decision making process in your business model.
Difference Between Bookkeeping and Accounting
The following bullet points will give a clear distinction between accounting and bookkeeping services:
- Major task: The primary task of bookkeeping service is to record all transactions undergoing in your business. Every data starting from the capital invested till the end date are recorded by bookkeepers. Whereas, accountants do the role of summarizing all these recorded transactions by bookkeepers and draw conclusions from the generated data.
- Skills: Bookkeepers hold greater accuracy in data entry, spreadsheets and working on bookkeeping softwares. Whereas, accountants are well aware about the running market trends and provide information related to business forecasts for better growth opportunity. They work the same as a business advisory consultant to make proper decisions based on your budget.
- Qualification: Obviously, accountants have higher educational qualifications in comparison to bookkeepers. It needs a high school diploma degree with data entry and numerical skills to become a bookkeeper. Whereas, an accountant has to complete a bachelor’s degree in finance and get a CPA certified license to work as a professional accountant. For these reasons, the wages of an accountant are always higher than those of a bookkeeper.
Frequently Ask Questions
1. What is the limitation of accounting?
Accounting majorly measures events based on historic value of amounts. The major limitation of accounting is it doesn’t consider the qualitative elements and personal judgements as a factor of financial decision making.
2. What are the advantages of accounting?
The major advantage of hiring an accounting service includes easy maintenance of financial statements and business records. Others include quick comparison of results obtained from different products and identify their performances.
3. What are the branches of accounting?
The major branches of accounting include financial accounting, auditing, forensic accounting, management accounting, cost accounting etc. The major classification of accounting are independent and dependent accounting.
4. What is the difference between bookkeeping and auditing?
Bookkeeping is a way of recording all financial transactions in a precise manner. Whereas, auditing refers to verification of the data entered by the bookkeepers. Auditing services are hired to check the accuracy of the financial transaction and identity errors made by the bookkeepers.
5. What is the difference between bookkeeping and a journal?
Bookkeeping means entering data of every penny spent in a systematic manner which are easy to understand. It is stored in the form of tabular data. Whereas journal refers to sorting all the transactions made in a chronological order which becomes easy to understand and check for improvement.
Business is the game of numbers in the real world. The numbers here directly refer to currency management. It is always recommended to take services from those financial solutions who are masters of it. Afterall, a more experienced one will always keep these numbers in favor of your business. Understanding the difference between bookkeeping and accounting is just a basic way to narrow down your understanding in finance. Therefore, running your business under the control of the right decision maker will always help you to grow more and earn more.