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:
Identification of a financial transaction
Recording of a financial transaction
Preparation of a ledger account
Preparation of trial balance
Now we will discuss about the key points of difference between Accounting and Bookkeeping
Bookkeeping involves identification and recording of financial transactions only.
Accounting involves preparation, summarizing, interpretation, analysing and classifying the financial information of a business.
Basis of Accounting
It is the origin of accounting.
It is the language of business.
It is narrower in scope as it is a part of accounting.
It is broader in scope.
Preparation of Financial Statements
Financial statements are just recorded not prepared in the case of bookkeeping.
Financial statements are prepared as it is an important part of the accounting process.
No analysis is required in case of bookkeeping.
Accounting analyses the data and creates insights for the business.
The personnel involved in bookkeeping are known as a bookkeeper.
The person involved in accounting is known as an accountant.
Showing Financial Position
Bookkeeping doesn't show the monetary situation of a business.
Accounting helps in indicating a reasonable and genuine perspective on the budgetary situation of a business.
Level of Understanding and learning required
No high-level of learning and understanding is required.
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:
Tracking of Sales
Contacts managing and tracking of contact history
Credit card payment records
Generation of invoices
Planning of Budget
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.
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.
Email Id Swati@neusourcestartup.com and Phone Number 9540026175.
The NeuSource Startup Mind is the finest business startup consultant that offers various services of registration like Proprietorship Firm Registration, Partnership Firm Registration, LLP Registration, Company registration, GST Registration, Copyright Registration, ISO Registration Trademark registration and other FSSAI License etc.
CS Vaishali Verma
Ideas are easy but Implementation is hard. If you're seriously passionate about something and you work hard, then I think you will be successful. Neusource helps you to make your start up successful.