Difference Between Accounting and Bookkeeping
By AndriyR, 7th May 2012 | Follow this author
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Posted in WikinutBusinessAccounting & Finance
Have you ever been confused by such definitions “bookkeeping” and “accounting”? If you have, the below article will provide you with knowledge about that are the differences between the two and why each of them is so special.
Bookkeeping - "working with books"
In many foreign language dictionaries you would find that terms “accounting” and “bookkeeping” are interpreted as synonyms. However, let’s dig-in and find out how bookkeeping is different from accounting and how they coexist in a modern world.
When talking about the “bookkeeping” the first thing we can do is to have a closer look at the word itself and see what is it made of: “Book”- probably means a record book or a journal where all business transactions are to be recorded and kept. “Keeping” - means maintaining all records in correct order and making sure the information in them is accurate and updated. Thus, people who perform such operations are called “Bookkeepers”.Their tasks, however, go far beyond just entering records into accounting books and journals. In most cases they are also responsible for collecting, classifying and managing all primary information related to business transactions. Very often companies use a double-entry bookkeeping in order to eliminate potential mistakes while working with numerical information. This means that the bookkeeper is entering information into two books at the same time. If a mistake is made in one, he can always refer to the other and correct it. The first entry book is called “Journal” and the second one is a “Ledger”, which is an accounting book in which main data from journals is accumulated, categorized and stored for future reference by accountants, bookkeepers, managers of the company, or for audit.
Accounting - "working with accounts"
Now, let’s have a look at “Accounting”. The word itself is made of a word “account”. Since old times, those were the classification clusters according to which a certain piece of financial information could be classified according to its nature. A company may have many different accounts and even sub-accounts, depending on an accounting system adopted in a country in which company is operating. Now, with the development of international corporations, many countries are adopting international accounting standards. Such steps attract investors and make the economy grow faster. Thus, in a broader meaning - “Accounting” is a process of categorizing, processing and interpreting all business transactions the company is involved both internally and externally in which money or property is involved.
Six Step Accounting Cycle
In general, accounting is performed in six steps, which are usually called an Accounting Cycle:
1. Analyzing the primary documents (like tickets or receipts);
2. Inputting data into journals;
3. Inputting data into ledgers;
4. Creating a trial balance sheet (analyzing data in ledgers to make sure everything is OK);
5. Preparing income statements and balance sheets;
6. Analyzing what has been prepared in step 5.
As you see, accounting is a much broader concept which actually includes bookkeeping (see steps 1, 2 and 3). In general - bookkeeping is an entry position for accounting careers in many companies: first a new employee learns the basic operations of the business and only after gaining a good experience with that he will be able to get a promotion and become an accountant. In big companies there are several bookkeepers and several accountants - each of them is responsible for one particular operation: payroll, accounts receivable, accounts payable, etc. That is why if you are thinking about choosing such a career - you should start as a bookkeeper and then move on to being an accountant.
Comments
10th May 2012 (#)
Great information as usual, Andriy.
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10th May 2012 (#)
Thank you, Pradeep! Glad you liked!
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