Are you curious to know about different terms used in the business world? You must have been heard about these two terms: bookkeeping and accounting. To put it simply, bookkeeping is the job of maintaining financial records, while accounting deals with interpreting, classifying, analysing as well as summarizing data.
You may wonder, what actually is the difference between two types of jobs when both deal with financial information? Well, you’re correct with your thinking. In both cases, you need basic accounting knowledge and prepare reports based on the analysis of financial transactions. Here in this article, you will get a comprehensive idea of different concepts of bookkeeping and accounting.
What are the major differences in bookkeeping and accounting?
There are some major differences in bookkeeping and accounting in different aspects, which you can understand clearly from this discussion.
- Definition: This has been already stated in the introduction. Bookkeeping deals with the identification, measurement and recording of financial transactions. On the other hand, an accountant interprets, classify and analyse the financial data in the ledger account supplied by a bookkeeper.
- Making a decision: A business management system cannot take important business decisions relying just on the data provided by a bookkeeper. They have to take those decisions depending on the data provided by the accountant.
- Objective: A bookkeeper aims to record all the financial information in a proper systematic manner. Because an accountant cannot prepare an accurate summary of financial information from a recorded data that is not well-maintained and systematic. On the other hand, an accountant will want to gauge the financial situation and communicate with the authorities regarding the financial report.
- Preparation of financial statement: To run a business successfully, a financial statement is the heart of a system. From it, one can get the idea of accounting information. This statement cannot be prepared by any bookkeeper because record keeping will not lead to any conclusion. The recorded financial information will require necessary accounting processes like interpreting, analysing and summarizing to make a financial statement. So, you can understand that it is the accountant’s job to prepare the financial statement.
- Skills required: The process of bookkeeping is an important job indeed. But, it doesn’t require any specified set of skills. Basic knowledge of accounting and finance can be enough for a bookkeeper to record all the data in a complete manner. While, accounting job involves more complexity because of the steps involving interpretation of data, detailed analysis and summarization of financial statement. So, to be an accountant, you have to gain proper skills to implement.
- Analysis: As mentioned before, the process of bookkeeping is not associated with any kind of analysing data. It only requires systematic recording of data. But, the process of accounting is something that involves a number of steps. One of the important steps is analysis. An accountant has to do a perfect analysis of business cash flow, current business trend, transaction market etc. to draw a conclusion, which is actually the financial statement.
- Types: There are usually two types of bookkeeping system that are generally used. One is, single-entry bookkeeping and another is double-entry bookkeeping.
Single-entry bookkeeping is generally used by business corporations that deal with minimal and less complicated transactions. In this system, cash sales and business expenses are recorded that are paid at the time of incurring. This system consists of a cash sales journal, a cash disbursement journals as well as bank statements.
Double-entry bookkeeping is generally used by business organizations where the transactions are more complicated. Companies generally collect income through accounts receivable, receive merchandise and inventory on credit. It is termed as double-entry as at the first entry, single transactions are posted as expense item while at the second entry, transaction to a corresponding account is traced.
There are no different types associated with accounting. The accounting department of an organization deals with the company’s budget plan and load proposals.
Apart from these major differences, there is another difference between a bookkeeper and an accountant. A bookkeeper will be very helpful to an accountant. Accurately recorded financial information will help the accountant to prepare a well-managed financial statement. An accountant with sufficient experience and efficiency can become a Certified Public Accountant (CPA).
Shifting landscapes of bookkeeping and accounting
Bookkeeping and accounting have been existing in the business world for a long time and both jobs have come through various changes. But, the current business trend in this era of the digital market is somewhat different from what is known as traditional. If your business is based in Australia, you may get a number of bookkeepers in Perth or anywhere else, who may now provide you with a variety of services.
- Merging of bookkeeping and accounting functions: As most of the accounting-related activities are now carried out in software, the boundary between bookkeeping and accounting is slowly fainting. Some accounting steps are now done in the bookkeeping process and similarly, bookkeeping software is also capable of creating financial statements.
- Losing importance of bookkeeping jobs: Bookkeeping as a job will never lose its place because it’s a fundamental one for a business to run successfully. But, in the near future, business companies may stop recruiting people in bookkeeping posts. Because, in accordance with the current business trends, most of the works will be done using different bookkeeping software.
- Extending the services: Newer technologies are emerging every day. Both bookkeepers and accountants can now extend their services to diverse works by becoming expert in technological advancements and emerging software. Apart from maintaining business records, bookkeepers can give service to their clients in a number of jobs like payroll processing or credit card reconciliation, all by using newer software.
- Increasing use of smartphones: Most organizations now operate online as mobiles and smartphones are easily available as well as portable. Business owners love to access all the data from anywhere in the world at any time and bookkeepers and accountants keep updated themselves about newer smartphone technologies to keep the data accessible.
In Australia, Perth is an ideal city for running a business. If you look for an expert accountant Perth, you may find available options on the internet.