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Why is it important to reconcile your bank statements?

In this article, we will discuss why it is essential for you to reconcile your bank statements.
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Bookkeeping Vs. Accounting: Learn the Difference

In this article, we will be examining and differentiating between two critical aspects of a business role, "Bookkeeping Vs. Accounting. By reading this article, you will successfully know what each term or function does and gain a good amount of clarity on each topic.

Defining Bookkeeping and Accounting respectively:

Bookkeeping refers to financial transactions that are recorded for a business by the business. The simple bookkeeping method is identifying, categorizing, and recording on ledgers or through a computer.

Accounting, on the other hand, accounting is where these transactions are interpreted, summarized, and reported to provide data and complete accounts set up.

The Basics

Bookkeeping is simply more commanding and open-ended. It also serves the purpose of recording your financial transactions. On the other hand, accounting is more complex and gives an overview of your finances related to bookkeeping information.

Bookkeeping Vs. Accounting: learn the difference

Bookkeeping

Accounting

Bookkeeping acts as an accounting base and is the beginning stage

Accounting begins where bookkeeping ends

Bookkeeping is not enough for management to make strategic decisions

Accounting is enough for management to make strategic decisions by going through accounting reports

The primary goal is to keep accurate and precise financial transaction records

The primary purpose of accounting is to make sure of the financial position and discuss this with relevant parties

At the time of bookkeeping, the financial statements are not yet generated

Financial statements are generated as a result of bookkeeping

   

 

The Key Differences of Bookkeeping Vs. Accounting

Bookkeeping Duties:

  • Daily Payments and Expenses Recording
  • Recording payments received and sending customer invoices
  • For every month, you have to conduct bank reconciliations
  • Payroll Processing
  • Giving monthly financial statements
  • Issuing books for accountant
  • Give the accountant tax documents and year-end financial documents.

Accounting Duties:

  • Making entries of adjustment
  • Analysis of operational costs
  • Make sure to guide business owners about financial decision making
  • Analysis and reviewing of financial statements
  • Performing audits
  • Filing, conducting, and providing tax returns, tax planning, and tax advisory.

The function of bookkeeping

One of the main aspects of bookkeeping is developing, organizing, and maintaining a general ledger, a document in which a bookkeeper sets the expense and sales receipts. Simply put, the more gain on sales, the more is written into the ledger. A ledger can mean a sheet of paper but can also be classified as a computer spreadsheet or software.

A bookkeeping system is defined by the business's size and the number of transactions fulfilled daily, week to week, and every month. Therefore, every purchase you make needs to be prioritized and recorded into the general ledger along with documents to be supported. However, which business needs these supporting documents is identified by the IRS.

The function of accounting

Accounting is a process that uses financial data compiled by a bookkeeper or business owner to produce financial models.

A vital aspect of the accounting process is the analysis of financial reports to get you to make your business decisions. The result is an easier and less complex understanding of profitability and an understanding of cash flow projections in the business. Accounting turns the specific information from the general ledger into insights that reveal the bigger picture of the business and the company’s path. Business owners will often look to accountants for help with strategic tax planning, analyzing their financial position, forecasting, and tax filing.

The function of accounting generally consists of financial data generated by a bookkeeper to construct financial models. Accounting then collects the data from the ledger, perceiving the bigger business scenario and the company's turn. Owners of businesses seek advice from their accountants to help with analyzing, planning, forecasting, and filing taxes.

Types of Bookkeeping and Accounting

Bookkeeping

There are two forms of bookkeeping:

  • Single Entry Bookkeeping
  • Double Entry Bookkeeping

Accounting

There are two types of Accounting:

  • Corporate Accounting
  • Management Accounting

The Dissimilarities between Bookkeepers and Accountants

Now that we have covered some ground and gotten an idea of bookkeeping and accounting and their functionality. Let us first understand the differences between bookkeepers and accountants and the primary responsibilities that they have to commit to.

Starting with;

Bookkeepers

Bookkeepers deal with general bookkeeping. They have to be excellent with numbers and accounting transactions to get the job done. What's also interesting is that an accountant approves their duties.

Accountants

Accountants also have to deal with numbers, but they also need to be aware of administration, finance, and commerce. Therefore, their education should mainly consist of either an Accountant Diploma or Bachelors in Commerce. Their duties are seen and approved by a Chartered Accountant (CA).

The Benefits of Bookkeeping and Accounting

Now that we understand and have a clearer picture of bookkeeping and accounting let's come to the part where these two, i.e., bookkeeping and accounting, come of benefit.

Bookkeeping benefits

  1. You can see how well your business is performing: this can tell you whether you are benefiting from money or having a financial breakdown.
  2. Cash flow management: Here, bookkeeping is essential where it tells you if you have a payment delay, cost efficiency, fluctuation of sales, wrong payments and so on
  3. Tax simplification: tax is oversimplified when you have everything noted down in your general ledger. You save up a lot of time, and you don't have to go through each tax file. So you can say that bookkeeping removes this burden off your shoulders. 

Accounting Benefits

  1. Strategic Planning: Accounting helps identify business areas that are prosperous and growing and those that are falling apart. Strategic planning will enable you to plan for the future of your business.
  2. Money to borrow from prospects: Banks and lenders go through your financial statements, and cash flow projections before your loan are all set and ready to be approved. Here accountants can help generate the necessities.
  3. Tax regulatory compliance: Here, accountants can help you and your business out by checking whether you're breaking any tax regulatory laws and procedures or not. It would be good if you had accounting to ensure there aren't any penalties for your business.

Knowing the difference between bookkeeping and accounting is understanding and observing what both parties have to offer financially with specific skills and services.

Some businesses also partner up with bookkeeping and accounting organizations to smooth running their team, inventory, and company growth.

Bookkeeping, as well as Accounting are two fundamental aspects of a business platform. Though they are different in definition and roles, they share a relative link or connection. In most parts, bookkeeping is subject to financial transaction recordings and ensuring that system information is up-to-date. Now here, accounting comes into play, meaning it provides information received from the bookkeepers to analyze, interpret, and evaluate the financial business situation.

To the naked eye, it may seem that bookkeeping and accounting are very much the same. But that is interestingly not the case.

Bookkeepers and accountants both play a vital role in a business and work with lots of numbers and figures. But accountants, on the other hand, do have to go through a lot of training both academically and professionally to be qualified to work as an accountant or chartered accountant.

Bookkeeping is all about recording the business's financial transactions and data, whereas accounting guides and assists you in summarizing these financial transactions and data into financial reports. 

Keeping in mind the complexity of both bookkeeping and accounting. A bookkeeper's task can assist you for various reasons, ensuring, not just one in particular such as:

  • Payroll
  • Payable bills
  • Invoices
  • Reconciling

Similarly, an accountant's tasks also include some of the following:

  • Preparing taxes
  • Applying for loans
  • Generating letters
  • Setting up

THE BOTTOM LINE

To make sure you're getting the best out of both business aspects is entirely up to you and your team to handle bookkeeping and accounting duties. On the one hand, the bookkeeper has to be vigilant when it comes to taking care of financial records and adequately aligned finances that they produce. In contrast, the accountant has to plan financially and strategically, contributing to the business’s long-term victory. It is essential to note here that while the majority of the businesses hire an employee to do their bookkeeping and accounting work, some companies and businesses also take on these responsibilities by themselves to save the trouble of finding someone to help them with such duties. Whatever the case may be, providing capital for your business only further helps your business to grow.

In our suggestion, we believe that bookkeeping and accounting services, whether as an individual or a business as a whole, should have positive attributes that will ensure that your business keeps reaching its total potential growth in sustainable business development.




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