Accounting Or Bookkeeping: What's The Difference?

All too often, the terms accounting and bookkeeping are used interchangeably.

And in many instances this is fair.

However, it’s not always sufficiently appropriate or relevant.

They are two different words with two quite separate meanings.

And if you’re considering working in either field, or as a business manager who needs to understand the business finance, you need to begin by knowing the difference between them, so you don’t inadvertently embarrass yourself by using the wrong terminology.

The purpose of this article is to define what bookkeeping is, define what accounting is, and explain the differences between the two.

By the end of the article, you should have a very clear picture of which of them is which, and even be in a position to decide which of them appeals to you more as a career.

And without further ado, let’s get straight to it.

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The Definitions Of Bookkeeping And Accounting

Bookkeeping 

According to definitions from Oxford Languages, bookkeeping can be defined as “the activity or occupation of keeping records of the financial affairs of a business”. 

Accounting

Meanwhile, according to definitions from Oxford Languages, accounting can be defined as “the action or process of keeping financial accounts”.

So, as you can see, the two are very closely related. But, they aren’t defined in the exact same way because they do differ from one another. This brings us onto our next section.

The Differences Between Bookkeeping And Accounting

There’s a crucial difference between the terms bookkeeping and accounting.

Whereas bookkeeping refers to the day-to-day recording, checking, and organization of the various transactions that apply to a business, accounting refers to the interpretation of and presentation of this data to business owners, managers, and investors.

This means that bookkeeping has a rather different remit compared with accounting. What’s more, this means that the roles and responsibilities of bookkeepers and accountants can be quite different from one another.

Both jobs require good mathematical ability, and the knowledge and understanding of the terms used in financial accounts.

Let’s expand on the nature of the responsibilities of the two roles, before elaborating more on the different skill sets required for each of them.

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Bookkeeping 

• The objective of bookkeeping is to keep accurate records of ALL the financial transactions made or made to a business.

• This record of these financial transactions has to be properly and systematically organized, in preparation for its use by an accountant.

• Bookkeeping does not involve the preparation of any financial statements, or any analysis of the recorded financial data. And thus the data produced through bookkeeping cannot be used for making managerial level or director level decisions.

• There are two types of bookkeeping, single-entry bookkeeping, and more commonly, double-entry bookkeeping.

• A bookkeepers’ work is usually overseen by an accountant.

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Accounting

• The objective of accounting is to gauge the financial circumstances of a business and further communicate the information to the decision makers and shareholders of the business.

• Accounting involves the use of data provided by bookkeepers to produce mandatory financial reports and statements.

• The data provided by accountants can be used by business managers to make critical decisions about financial and operational strategies for the business.

• An accounting department can prepare a company's budget and plan loan proposals.

• An accountant needs to be familiar with bookkeeping in order to oversee a bookkeeper’s work.

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The Roles Of A Bookkeeper And An Accountant

Bookkeeper

Working in bookkeeping requires excellent numerical ability, speed, accuracy, a real eye for detail, and the ability to spot mistakes.

The average salary for bookkeepers is $42,958 per year.

Accountant

The role of an accountant goes beyond mere record keeping and checking. An accountant also has to be able to analyze the financial data, with a view to explaining it to business managers.

The role of an accountant requires the same knowledge held by bookkeepers, and more besides. And they can advise business managers on tax matters.

The average salary for bookkeepers is $53,558 per year.

Trends In The Field Of Bookkeeping And Accounting

Modern technology has led to significant changes in the fields of bookkeeping and accounting. Let me walk you through them…

• The line between bookkeeping and accounting is gradually diminishing. The software designed to perform bookkeeping functions, the recording of financial transactions, is now able to perform accounting functions on top of that, interpreting and presenting the data. Some bookkeeping software is also now capable of generating mandatory annual financial statements.

• The bookkeeping profession is in decline, and some argue that it may eventually become obsolete. This is because bookkeeping software can now scan financial documents, and the data entry element of the role will diminish. There may still be relevance, however, when it comes to the reconciliation of bank statements and accounts.

• Such technology also helps to ensure a more efficient service for businesses, and can even save the business money.

• This technology is becoming increasingly intuitive and easy to use, and does not require a great deal of knowledge in order to understand how to use it correctly and effectively.

• Financial data is now being increasingly produced to be viewed on other devices besides PCs, such as smartphones. This way, the information can be accessed anywhere at any time by those with access.

Wrap Up

So, as you can see, there is considerable overlap between bookkeeping and accounting. And in fact, the definitions put forward earlier could even cause people to believe that the two things are the same.

However, there is a real difference between the two. Bookkeeping is an essential part of any business, since without accurate recording of financial transactions, the accountancy process of preparing correct, accurate financial statements could not be done.

Accountancy requires basic bookkeeping knowledge, but it then takes that data, and uses it to analyze how the business is doing financially, and prepares mandatory annual financial reports that can be used by business managers to reflect on how the business is doing so that they can make the right decisions going forward.

Your check stubs can be a great way for you to keep track of your finances so you can easily add the figures to your spreadsheet.

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