Accounting is the analysis and dissemination of data to business owners and investors. Bookkeeping is focused on recording and managing financial data. Accounting and Bookkeeping are equally important in every business, regardless of the size and type. Learning the difference between Accounting and bookkeeping enables you to know how it helps to record and maintain the financial operations of the company on a daily basis. These functions help the management to quickly understand and control the movement of money before making a financial decision.
BMS Auditing in Dubai provides quality and timely accounting services by maintaining accurate accounting and financial records. The chartered accountants at BMS provide the finest accounting and bookkeeping services for the smooth and effective running of the business.
This session discusses the differences between accounting and bookkeeping.
What is Accounting?
Accounting is the process of recording financial transactions related to the business. The method of accounting includes summarizing, assessing, and reporting the transactions to administrative agencies, supervisors, and tax collection groups.
Accounting is one of the major functions of every business. The process is handled by an accountant or bookkeeper in a small business or office or by large finance departments with many employees. The reports created by different accounting streams, such as cost and managerial accounting are valuable in enabling the management to make wise business decisions.
There exist different types of accounting based on the requirements of the company, they are,
- Account Review
- Financial planning and analysis
- Payroll services
- Business Consulting
- Forensic Accounting
- Management Accounting
- International Accounting
- Backlog Accounting
What is Bookkeeping?
Bookkeeping is the process of organizing, grouping, and maintaining the financial records of a business. The process includes recording transactions and storing the financial documents to manage the total financial well-being of the organization.
Bookkeeping also refers to various recording methods used in a business. Bookkeeping plays a crucial role in the accounting process for various reasons. When maintaining the updated transaction records, you generate accurate financial reports that enable you to measure business performance.
Two types of general bookkeeping are:
- Single-entry bookkeeping
- Double-entry bookkeeping
Whereas bookkeeping can be classified into the following types based on the requirements of the businesses
- Accounts receivable
- Accounts payable
- Bank reconciliations
- General ledger maintenance
- Inventory management
- Payroll processing
- Fixed asset tracking
- Financial statement preparation
- Cash flow management
Accounting vs Bookkeeping
Bookkeeping is the foundation/base of accounting.
Accounting uses the information obtained from bookkeeping to prepare financial reports and statements.
Bookkeeping is a part of the whole accounting system.
Accounting begins where bookkeeping ends, with a broader scope than bookkeeping.
The result of the process is providing input for accounting.
The result is preparing financial statements for making effective decisions and conclusions.
The purpose is to maintain an organized record of financial activities and transactions in chronological order.
The purpose is to report the financial strength and obtain the results of the operating activity of a business.
The objective is to summarise the impact of the financial transactions of a business for a specific period.
The objective is to explain and analyze financial information for expert decisions.
The person responsible is called a bookkeeper.
The person responsible is called an accountant.
Bookkeeping is clerical in nature. The bookkeepers do not require any special knowledge or skill.
Accounting requires the skills of an accountant and knowledge of various accounting practices and policies.
The financial statements are not included in this process
The financial reports and statements are included in this process.
The bookkeeping process follows accounting conventions and concepts.
Accounting procedures and methods for clarifying and analyzing financial reports differ from one entity to another.
Why are Accounting and Bookkeeping Important?
The objective of accounting and bookkeeping in a business is to provide reliable financial information that is necessary for decision-making, planning and control. Accounting is responsible for providing stakeholders with valuable financial information and ensuring compliance whereas, Bookkeeping is the process of recording and tracking financial transactions, which forms the foundation of accounting.
Both accounting and bookkeeping play a critical role in helping businesses understand their financial performance and position, so they can make informed decisions about their future. The ultimate goal of accounting and bookkeeping is to help a business maintain financial stability and grow over time.
Why is Accounting important?
Accounting plays a vital role in the smooth running of a business, as it enables you to track income and expenses, ensure legal compliance, and provide quantitative financial information to investors, management, and government, to make effective decisions in business.
These are the major financial statements generated by the records through Accounting:
- Income statement - information about profit and loss
- Balance sheet - clear idea about the financial position of the business
- Cash flow statement - connects the income statement and the balance sheet reports the cash generated and spent
It is essential that you maintain financial records accurately and updated so your business operates consistently. Here are a few reasons why Accounting is important in a business- whether big or small.
- Enables evaluation of business performance
- Ensures compliance with laws and regulations
- Enables to create of the budget and future estimates
- Enables filing of financial statements
Why is Bookkeeping important?
Are you unsure about the need for bookkeeping in a business? Here are some key factors that show the benefits and importance of bookkeeping:
- Enables precise budgeting
- Ensures preparation for the tax phase
- Ensures the records are organized
- Easily recognizable and helps to meet business targets
- Follows government rules
- Ensures peace of mind
Difference Between Accountant and Bookkeeper
The responsibilities of an accountant and a bookkeeper are different but interrelated. An accountant is primarily responsible for analyzing financial data and providing recommendations. Meanwhile, a bookkeeper ensures that all financial transactions are recorded in a timely manner and that the financial records are organized and complete. Both an accountant and a bookkeeper play a crucial role in helping a business understand its financial position and make informed decisions, so the two roles often overlap and complement each other.
What is the role of an Accountant?
When providing an accounting service for a business, an accountant has certain roles and responsibilities based on the employer and client requirements. Let us look at some key roles:
- Documentation of financial transactions
- Manage the efficiency of the current accounting techniques and ensure compliance with government laws
- Analyze financial documents to solve the differences and inequalities
- Rectify the documented reports, statements, and transactions
- Create, evaluate, and submit the budgets
- Assist the auditors to prepare audit reports
- Provide support on enhancing revenue, reducing costs, and optimizing profit
- Submit tax returns annually
An accountant should also follow the compliance rules of the respective country he/she providing services. For example, An accounting firm in Saudi Arabia, offering accounting services in KSA should always follow the financial laws and regulations of the country.
What is the role of a Bookkeeper?
In a Bookkeeping Service, the primary duty of a bookkeeper is to record daily financial transactions, update a general ledger and prepare trial balances for review by accountants. Bookkeepers help to execute payroll and generate invoices for the company.
A bookkeeper is an integral part of an accounting team, to maintain various ledgers used in creating major financial reports. Here are the key roles and responsibilities of a bookkeeper:
- Record the transactions such as income and expenses, and post them to various accounts
- Process the payments
- Conduct banking activities on a daily basis
- Create financial reports
- Accommodate reports to third-party records, e.g. bank statements
BMS Auditing is a renowned audit firm that provides the most professional accounting and bookkeeping services in the UAE, Bahrain, Oman, Qatar, KSA, UK, India and UAE. The expert accountants at BMS help you handle vital errors in financial records. With experienced chartered accountants, you get a broad and clear picture of the client’s business irrespective of the size and difficulty in figures.
Having the best bookkeepers, BMS will always assist you with the data entry and bank reconciliations required. Our certified accountants ensure that all financial decisions are carefully made.
Need accounting and bookkeeping assistance for your business? Call BMS.