The Difference between Accounting and Bookkeeping

Every good business must have a proper track of its finances. Finances are what sustain your business so it is important that they are recorded in a methodical and orderly fashion. People often get mixed up with the two terms so it is important to know the difference. Bookkeeping is seen as more of a basic step towards accounting. Accounting is seen as more comprehensive and gives you a detailed summary of all the transactions, inflows and outflows of your finances. Bookkeeping will not be sufficient to manage the finances of a large company. Let us define both to get a better understanding of what both these concepts are and how we should differentiate the same.

What is bookkeeping?

Bookkeeping would give you a picture of what your income and expenditure would be within a certain period. Small businesses would assign someone to add all transactions into a form of ledger and keep sales returns, cash books and journals up to date. Bookkeeping essentially lays the foundation for accounting by clearly showing any transactions on a daily basis. It does not reflect the financial position of an organization it simply shows all the financial transactions that have taken place. Any major decisions taken in a large-scale business will not be and should not be on the basis of what you see on a ledger. This is where most businesses fail to identify what their real status is financially.

What is accounting?

Accounting is an integral part of any business and is where you would be able to find enough statistics on your financial situation to make important decisions in your business. Monetary transactions of similar nature are categorized and grouped together so that these elements can all come together to form a clear financial statement for the management to review. Some companies even hire the services of specialized firms to handle their accounts for them. In countries like Australia it is common to see large-scale companies using the services of accounting and bookkeeping firms Melbourne for example. Outsourcing would be more cost-effective and would ensure you have professionals working on your finances. Financial statements are based on proper accounting and must be clear and decisive in showing the data it presents. There are of course different types of accounting like financial accounting to Cost accounting. Each branch of accounting plays a vital role. An absence of one will not give you the true picture of the financial situation of your institution.

They are both dependent on each other

Accounting must be done built on the info and data collected by the systematic bookkeeping. An improper method of maintaining your ledgers would mean that no matter how much you organize and categorize your finances the root data itself would be inaccurate. It could be a discrepancy in numbers that leads your company into making a bad decision and this could prove to be very costly in the long run.

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