BOOKKEEPING AND ACCOUNTING

Introduction

In general parlance, the words bookkeeping and accounting are used in place of each other. But their meaning and concept is entirely different from each other.

The term accounting is a wider term as bookkeeping is an integral part of accounting. It encompasses preparation of Business transactions which are monetary in nature, e.g. Balance Sheet, P/L Account, Cash Flow explanation, Income tax arrangements, Audits and so on and interpreting as well as analysing it. "Bookkeeping" means recording of accounting. It includes keeping an appropriate record of all the monetary accounts. Accounting is done by an accountant. It requires skills and is technical in nature. Then again bookkeeping is administrative in nature. In specific organisations bookkeeping is done manually which are handled by subordinate representative of the establishment and in some organisations bookkeeping is done using digital tools.

Meaning of Accounting

It is done where money related transaction of a business is maintained and recorded, examined, summarized and ultimately report is prepared as per the available information which helps the general public to understand the financial position in a true way.

The main purpose of accounting is that it develops credibility in the minds of stakeholders as well as it helps the company to take monetary decisions in short as well as long run. Accounting provides true view to investors, creditors, employees, and government. It is also considered as the business language.

Meaning of Bookkeeping

Bookkeeping is the process where financial dealings of a business is recorded, stored and retrieved.

The emphasis of bookkeeping is to maintain an exact record of all the financial transactions of a business. Companies use this data and information to make major investment decisions.

The bookkeeper maintains all the records of bookkeeping. Correct bookkeeping is critical for business as it gives a piece of reliable information on the performance of a company.

Process of Bookkeeping involves the following steps:

1. Identification of a financial transaction
2. Recording of a financial transaction
3. Preparation of a ledger account
4. Preparation of trial balance

Now we will discuss about the key points of difference between Accounting and Bookkeeping

Definition

Bookkeeping

Bookkeeping involves identification and recording of financial transactions only.

Accounting

Accounting involves preparation, summarizing, interpretation, analysing and classifying the financial information of a business.

Basis of Accounting

Bookkeeping

It is the origin of accounting.

Accounting

It is the language of business.

Scope

Bookkeeping

It is narrower in scope as it is a part of accounting.

Accounting

It is broader in scope.

Preparation of Financial Statements

Bookkeeping

Financial statements are just recorded not prepared in the case of bookkeeping.

Accounting

Financial statements are prepared as it is an important part of the accounting process.

Analysis

Bookkeeping

No analysis is required in case of bookkeeping.

Accounting

Accounting analyses the data and creates insights for the business.

Bookkeeping

The personnel involved in bookkeeping are known as a bookkeeper.

Accounting

The person involved in accounting is known as an accountant.

Showing Financial Position

Bookkeeping

Bookkeeping doesn't show the monetary situation of a business.

Accounting

Accounting helps in indicating a reasonable and genuine perspective on the budgetary situation of a business.

Level of Understanding and learning required

Bookkeeping

No high-level of learning and understanding is required.

Accounting

Elevated level of learning and comprehension is required for understanding and assessing ideas of accounting. Since we realize that bookkeeping and accounting are the key capacities in any business. Independent businesses face certain difficulties in accounting and bookkeeping procedures. Let’s examine about the challenges faced by small private business.

Certain Bookkeeping problems faced by Small Businesses

Not choosing the updated Software’s

Choosing the updated and correct programming is probably the greatest challenges that small businesses by and large face. It’s very important to choose the properly updated software’s suiting the business needs. The points which should be considered while choosing the best software are:

Features of accounting software must include:

• Inventory control
• Tracking of Sales
• Contacts managing and tracking of contact history
• Credit card payment records
• Generation of  invoices
• Financial statements
• Planning of Budget
• Payrolls
• Taxation matters

Incorrect Financials Information

If your financials information and data is incorrect, it will descend the funding round of the business. Any mistake in the financial statements can lead to financial losses. Financial data in bookkeeping and other business procedures should be kept up to date. Financial statements and data must give clear and transparent view of business operations. Income and expense statements must be exact and identified with the P/L, Cash flow and balance sheet. Delayed data entry should be avoided.

Regular updates in Financials is not made

Generally small business prepares financials on a quarterly basis or half yearly basis. However, financials shall be prepared on monthly basis as it helps to show investors that the business is closely monitored.

Mixing Personal Finances with the Business Account expenses

Personal expenses and business expenses should not be mixed because it will be difficult to evaluate the accurate profit which would otherwise provide true and fair view of affairs of the company.  For example, if a company’s credit card is used for making personal expenses then this amount should be reduced from the company’s income.

Not making use of Accounting Software or Cloud Technology

Proper software and updated technology should be used by the company as it will improvise the decision making. Making use of the wrong or improper software (not having necessary features) can make decisions complex. Proper Accounting software helps to prevent any type of accounting as well as bookkeeping errors.

Conclusion

There is no hard and fast rule which applies to managing the accounting and bookkeeping. As the issues are discussed above, small businesses can overcome these problems and challenges right from selecting a proper accounting software and technology to manage the responsibilities correctly as well as updating them are one of the biggest accounting and bookkeeping challenges which are generally faced by small businesses.

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