Every business, regardless of which industry it caters to, needs to deploy a bookkeeping and accounting process to maintain the financial records at the end of the fiscal year.
Moreover, professional accounting and bookkeeping services can help a company evaluate its financial worth and make business decisions accordingly.
Often, most individuals mistakenly assume that these two finance fields are identical and, thus, use these terms interchangeably.
Bookkeeping and accounting are vital pillars of business finance and majorly assist companies in achieving a sound structure, seamless operations, and a solid bottom line. However, they are two different pillars helping businesses achieve their financial goals.
In this article, we will learn the meaning of and differences between accounting and bookkeeping.
Bookkeeping: What is it?
Bookkeeping is one of the two crucial finance fields that help businesses maintain and record all financial transactions in the original books of account. Furthermore, it also involves summarizing and organizing an enterprise’s financial transactions systematically.
Bookkeeping focuses on your business’s day-to-day financial activities and transactions. The financial transactions can involve sales revenue, payment of taxes, loans, interest income, investments, payroll, etc. A well-qualified bookkeeper can help maintain and record books of accounts.
It’s crucial to update the books of accounts as they are the foundation for accounting.
To understand your business’s financial health, you need to focus on both accounting and bookkeeping services.
Accounting: What is it?
Accounting is the second vital finance process that a company follows to interpret, analyze, summarize, and report its financial transactions. The financial statements prepared during the accounting process are a precise summary of financial transactions over a fiscal year.
These statements summarize your organization’s financial position, cash flows, operations, and performance.
The accounting process helps companies consolidate financial information to make it understandable for all vital stakeholders. Moreover, it’s key to maintain timely and accurate records of their day-to-day financial transactions.
For instance, hospitality accounting services record your hotel or restaurant’s daily transactions in the financial statements, including the income or cash flow statement, balance sheet, etc.
You or your stakeholders can assess your business’s financial performance by evaluating these financial statements.
What is the Role of Bookkeeping?
The bookkeeping procedure has many facets. Professional bookkeepers perform all essential tasks consistently and continuously to keep the information accurate and current. It’s because businesses encounter financial transactions each day.
The financial transactions can include purchasing inventory, paying vendors, receiving payments from customers, and other transactions where money changes hands.
It’s crucial for bookkeepers to manage a careful record of these financial transactions and oversee essential business data. Here’s how the bookkeepers maintain the books of accounts:
- They first record financial transactions in a journal or ledger.
- Then, each transaction is classified according to its type and purpose.
- Bookkeepers are also responsible for producing invoices, handling payments, and reconciling bank statements.
- Lastly, they prepare financial statements like equity statements, profit and loss reports, and income statements, balance the accounts, and consolidate the data into summaries.
All these financial statements provide stakeholders with a financial summary to quickly communicate about the company’s health.
Without professional bookkeeping services and accurate recording of financial transactions and other financial information, businesses would lack reliable records and, thus, fail to know about their structure and performance.
What is the Role of Accounting?
The accounting process follows bookkeeping by using financial records to identify, analyze, and communicate information to management, investors, bankers, and government agencies.
Accurate analysis and interpretation of financial records allow stakeholders to make informed choices related to improving the performance, productivity, and profits of a company.
Among many essential accounting tasks, reliable hospitality accounting services generate financial statements, analyze past performance, forecast the future, create informative models, file taxes, and give informed advice on how your hotel or restaurant can grow and improve its performance.
These insights will help the management develop its approach to make educated decisions on how to mitigate potential risks and optimize business performance as effectively as possible.
Bookkeeping and Accounting: Learning the Difference
Simply put, bookkeepers are professional in tracking and organizing data by recording it in books of accounts and summarizing financial transactions.
On the other hand, accountants build on the information recorded and summarized by the bookkeepers to help companies manage their business and prepare for taxes.
Bookkeepers measure the pulse and other crucial signs of your company. At the same time, accountants use those identified signs to address the larger picture and make educated decisions about business performance and growth.
Therefore, accounting and bookkeeping services are two vital pillars for your company’s success.
Let’s understand the difference between bookkeeping and accounting:
- Bookkeeping mainly involves identifying, measuring, and recording financial activities and transactions.
- Accounting involves summarizing, interpreting, and communicating the already recorded and summarized financial transactions.
- The management can’t make business decisions based on the data provided by bookkeeping.
- Management can quickly make critical business decisions based on the data provided by professional accountants.
- Bookkeeping’s objective is to maintain the records of financial transactions systematically.
- Accounting’s objective is to gauge the financial situation and communicate the interpreted information to relevant stakeholders.
Preparation of Financial Statements
- Bookkeeping doesn’t involve preparing financial statements.
- Accounting involves preparing financial statements.
- To become a bookkeeper, an individual doesn’t require any special skill sets.
- Now that accounting is analytical and complex in nature, an individual requires special skills to become a professional accountant.
- The bookkeeping process doesn’t require any analysis.
- Accounting uses information recorded during the bookkeeping process to analyze and interpret the data and, lastly, complies with data in reports.
To wrap up it all
Despite the above-discussed differences between the bookkeeping and accounting processes, these two finance fields have a lot in common. Remember that accounting is not possible without the Bookkeeping for a restaurant or other businesses.
Bookkeepers and accountants perform complementary functions to maintain financial records. Moreover, they work together to record accurate financial data while complying with legal requirements.
They communicate with each other to address any discrepancies in financial records and strategize to resolve them. Now that you know the differences and similarities between bookkeeping and accounting, you can make better hiring decisions and specific accountabilities.