Bookkeeping and accounting both record money transactions, use the same source documents, follow the double-entry system and accounting principles, and aim for accurate records that help owners and lenders decide. The difference is scope: bookkeeping records and classifies transactions, while accounting goes on to summarise, analyse and interpret them in financial statements.
Bookkeeping is the Science and Art of correctly recording in books of accounting. All those business transactions result in the transfer of money or money worth.
Bookkeeping Means keeping books of accounts according to Certain Rules and Procedures adopted for the Maintenance of accounts for financial activities.
Thus, bookkeeping is a part of Accounting wherein entry in Preliminary books of Accounts, classification, posting in the Ledger, Preparation of Trial Balance, etc. is done.
Bookkeeping may be defined as the science as well as the art of recording business transactions under appropriate accounts.
Generally, it may also be defined as the Art of Recording Mercantile Transactions in a Regular and Systematic manner the art of keeping accounts in such a manner, that a man may know the truth that of his business and Property by an inspection of his books.
7 Similarities between Bookkeeping and Accounting
- Same subject matter: both deal only with transactions that can be measured in money.
- Same source documents: both rely on invoices, receipts, vouchers and bank statements.
- Same rules: both follow the double-entry system and generally accepted accounting principles and conventions.
- Same goal of accuracy: both aim to keep a complete, correct and up-to-date record of the business.
- Linked process: accounting starts where bookkeeping ends, so neither is useful without the other.
- Decision support: both ultimately serve owners, managers, lenders and tax authorities.
- Same tools today: both are now largely done in accounting software such as Tally or QuickBooks.
| Basis | Bookkeeping | Accounting |
|---|---|---|
| Scope | Recording and classifying transactions | Recording plus summarising, analysing and interpreting |
| Stage | First stage | Begins where bookkeeping ends |
| Output | Journal, subsidiary books, ledger, trial balance | Final accounts, financial statements, reports |
| Result of business | Not shown | Shows profit or loss and financial position |
| Skill needed | Clerical, routine | Analytical, judgement-based |
| Branches | None | Financial, cost, management, tax accounting and more |
Differences between Bookkeeping and Accounting
On the basis of the above definitions, it is clear that bookkeeping is the Preliminary phase of Accounting but the main differences between them are as follows:
- The scope of bookkeeping is limited to keeping accounts of the transaction but the scope of accounting is extensive in comparison to bookkeeping. Bookkeeping includes accounting.
- Bookkeeping is the basic organ of accounting and accounting depends on bookkeeping.
- All business Organisation Adopt Accounting Principles equally but some differences can be seen in the report of Accounting facts analysis and method of interpretation.
- So the Results of financial transactions are not known by bookkeeping but accounting shows the Result of business.
- The object of Bookkeeping is preparing Preliminary original books (journal, subsidiary books, and ledger) but the object of accounting is analysing and interpreting Business transactions.
- Bookkeeping is only an art of accounts whereas accounting makes it meaningful and objective.
- There is no sub-field of bookkeeping but accounting has several sub-fields like financial accounting, Management Accounting, and cost accounting.
Thus, the similarities and differences between bookkeeping and accounting can be depicted in the following chart:
Accounting Cycle (Explained)
The accounting cycle is a complete sequence of accounting that starts from the recording of transactions or bookkeeping and ends with the preparation of final accounts.
Normally these words are used interchangeably by students, thinking that all of them have the same meaning but this is not correct.
Under book-keeping following activities take place for maintenance of books of accounts:
- Identification of transactions.
- Measuring the transaction in terms of money.
- Recording of the transaction and.
- Classification of transactions.
Where the function of book-keeping and accounting starts the following activities are considered in Accounting:
- Communicates the Accounting information to the Users/Persons/Parties.
- Analysis and interpretation of financial statements.
- Preparation of final accounts in (summary).
Thus, Accountancy Represents the Systematic knowledge according to the 1. rules 2. regulations 3. procedures 4. principles 5. concepts 6. conventions and 7. techniques which are being applied in the process of accounting.
It expresses the why and how to do various aspects of accounting.
So, now we can say that there are lots of similarities and differences between bookkeeping and accounting.
