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Introduction to Accounting
Accounting is mainly concerned with recording financial transactions and events in accounting books, summarizing them, and communicating financial information to users, such as proprietors (shareholders in the case of corporations), lenders, creditors, debtors, investors, the government, banks, and employees. Accounting is essentially the process of recording, classifying, and summarizing financial transactions and events, as well as understanding and reporting the results to the users.
Meaning of Bookkeeping
Bookkeeping is the process of collecting, recording, organising and analysing all the financial transactions of a business. Bookkeeping is an essential part of accounting, and it focuses mainly on tracking a company’s day-to-day financial transactions. All the transactions are recorded in the books of accounts, including sales revenue, tax payments, interest earned, payroll as well as other operational expenses, investments, loans and so on. The accuracy of the total accounting process in a business is determined by how well bookkeeping is managed. As a result, bookkeeping guarantees that financial transaction records are up to date and, more crucially, accurate
Difference between Bookkeeping and Accounting
POINTS | BOOKKEEPING | ACCOUNTING |
DEFINITION | Bookkeeping involves identifying, measuring, and recording financial transactions. | Accounting involves summarizing, interpreting, and communicating financial data which were classified in the ledger account |
MANAGEMENT DECISIONS | Management cannot make decisions based on just the data provided by bookkeeping. | The management can take critical business decisions based on the data provided by financial reports and analysis. |
OBJECTIVE | The sole objective of bookkeeping is to maintain chronological and accurate records of all financial transactions in a proper and systematic manner. | The purpose of accounting is to analyse the financial position of the business and further communicate the information to the relevant authorities. |
FINANCIAL STATEMENTS | The process of bookkeeping does not involve the preparation of financial statements. | The process of accounting involves the preparation of financial statements. |
SKILL SET | Bookkeeping is a simple process and does not require any special skill set. | Due to its analytical and complex nature, accounting requires a special skill set. |
ANALYSIS | Analysis is not a part of the process of bookkeeping | The information provided by bookkeeping is used by accounting to prepare financial statements and other reports |
TYPES | The two methods of bookkeeping are Single entry and double-entry bookkeeping | There are two types of accounting- financial and managerial. |
Methods of Bookkeeping
Single Entry Bookkeeping
Single-entry accounting is a simple method that involves making one entry for each transaction in the books of accounts. To keep track of revenue and expenses, these transactions are frequently recorded in a cash book. The single-entry system does not necessitate formal accounting training. Tiny private enterprises and sole proprietorships that do not buy or sell on credit, own little to no tangible assets, and retain small amounts of inventory will benefit from the single-entry technique.
Double Entry Bookkeeping
Double-entry accounting is a more reliable method of accounting. Every transaction impacts at least two accounts, and these transactions are recorded as debits and credits. If you make a sale of Rs.100, for example, your cash account will be debited and your sales account will be credited with the same amount. The total of the credits side must always match the total of the debits side under the double-entry system. When this occurs, the books are said to be “balanced.” If a company is large, public, or buys and sells on credit, using the double-entry approach for bookkeeping becomes necessary. Since it allows less space for error, businesses frequently opt for the double-entry technique. As each transaction is recorded in two different accounts in the ledger, it essentially ‘double-checks’ the books of accounts.
Cash Based Bookkeeping
When a business is cash-based, it recognizes revenue when it gets cash. When expenses are paid for, they are recorded. To put it another way, any time money enters or exits the accounts, it is recorded in the books. This means that credit purchases or sales will not appear on the books till the cash is exchanged.
Mobile Bookkeeping
Mobile Bookkeeping or mobile Accounting refers to the capacity to access financial and other business-related information from anywhere and at any time using a mobile device such as a smartphone, laptop, or tablet to complete accounting activities. It consists of software and services that may be accessed via mobile applications or directly via web browsers. The popularity of mobile accounting is only increasing.
Conclusion
Since bookkeeping is the first step or origin of accounting, it serves as a foundation for the accounting method. As a result, bookkeeping is strongly intertwined to accounting. Because bookkeeping serves as a foundation for accounting, it is assumed that if records are correctly kept, the accounting will be excellent as well, and vice versa. Bookkeeping is a clerical job. As a result, a basic understanding of commerce is sufficient, but accounting is an analytical task that requires a complete understanding of the subject.
