List and explain the difference between bookkeeping and accounting?

Answer 1

Definition:

Bookkeeping - Simply recording financial transactions. Each is identified, categorized, and recorded. This could be in paper ledgers or on a computer.

Accounting - This is where financial transactions are classified, analyzed, interpreted, reported, and summarized to provide important financial data and a complete set of accounts.

Decision Making :

Bookkeeping - The information produced by a bookkeeper is too basic to facilitate any management decisions to be made using the data provided.

Accounting – The detailed information that an accountant can provide gives an in-depth view of a business's financial status. It is, therefore, essential for making the right decisions regarding the future of the company.

Objectives :

Bookkeeping - The key objective is to maintain records of every financial transaction made by the business. Ensuring it is lodged in a clear, systematic way where a third party can easily understand each transaction. A bookkeeper must also keep the books balanced.

Accounting – This goes beyond simply maintaining a record of transactions and gauges the companies financial situation. This information can then be communicated to other parties such as banks, financial institutions, or government authorities.

Preparation of Financial Statements:

Bookkeeping – A bookkeeper is not typically expected to produce financial statements. They may be required to study certain key areas of income or expenditure within a business and report these to management for review, but generally, no financial statements will be prepared by a bookkeeper.

Accounting – One of the primary functions of accounting is to produce detailed financial statements that can be used by management and submitted to third parties.

Analysis:

Bookkeeping – A bookkeeper is not generally required to analyze the books. There are some exceptions to this; for instance, the management may require a breakdown of staffing costs or to know how much of a particular product is sold or purchased. These types of analysis are straightforward to do and can easily be deduced from the ledgers kept by a bookkeeper.

Accounting – The person responsible for producing the annual accounts may also be asked to provide detailed information which they have analyzed, interpreted and used to generate complex reports.

Skills:

Bookkeeping – Most people in a bookkeeping role will have had some level of training. This is because it’s necessary to understand the principles involved when keeping books. However, to be a bookkeeper doesn't require any special skills.

Accounting – Someone working as an accountant will have specific accountancy training and qualifications, as to produce a set of accounts requires a specialist skill set.

Bookkeepers vs. Accountants

Bookkeepers – Must accurately record every financial transaction made by the business. They do not require formal qualifications, only a thorough understanding of the processes necessary to maintain an accurate set of books.

Accountants – Are qualified persons usually with a degree. There are many different types of accountants, including Certified, Staff, Investment, Cost, Project, Management, or Forensic. Each has a slightly different field of expertise.

Conclusion:

An accountant can be considered a bookkeeper, but a bookkeeper cannot be an accountant without proper certification.

As you can see, the line that makes the difference between bookkeeping and accounting clear has become blurry over time. The invention of computers and the continued growth of technologies that make keeping financial records simple are ever-increasing. However, there still is a difference between the two functions and it is likely this will remain.

Answer 2

The difference between accounting and bookkeeping is that bookkeeping is just a part of accounting. Bookkeeping is only handling financial transactions while accounting is a broader term. To become an accountant you need a bachelor's degree or a higher level of expertise.