Bookkeeping And Accounting

What is meant by Accounting?

 The word accounting was used in Great Britain by the mid-1800s and is derived from the words accompanying and accountantship used in the 18th century. The word is derived from the Old French word aconter, which is related to the Vulgar Latin word computare, meaning “to reckon”. It also had origins from the word putare, which means to rectify or purify something. 

The term accounting is defined as analyzing and reporting financial transactions. Accounting is the language of the business world as it gives the various interested parties in the company, firm, business non-financial and financial information about them.

Types of accounting

There are 4 types of accounting; details about them are given below:  

1. Financial accounting:

The main focus of this type of accounting is to analyze and report the financial position of companies and businesses to the various interested parties in those companies or businesses. It analyzes and reports the companies or businesses’ financial position keeping in mind the generally accepted accounting principles (GAAP).

2. Management accounting:

The main goal of this type of accounting is to analyze and report information to managers to make decisions that will achieve or help achieve the organization’s long-term goals. They do not have to consider the generally accepted accounting principles (GAAP) while reporting information. The information reported can be of financial and non-financial nature. It could be of past performance or a report about changes in the capital structure of a company to raise funds and reach a particular valuation.

3. Tax accounting:

The main focus of this type of accounting is to file tax returns for individuals and businesses. It has specific rules to keep in mind while filing tax returns. This type of accounting also does have to follow generally accepted accounting principles (GAAP).

4. Forensic Accounting:

It is a field of accounting that mainly focuses on investigating fraud embezzlement in books of accounts. It requires both accounting and investigative skills.

What is meant by bookkeeping?

Bookkeeping is defined as the preparation and recording financial transactions; it includes all operations and all other events of the business. The person appointed to perform the bookkeeping process in the firm is called the bookkeeper. They are responsible for preparing source documents for all transactions.

Types of bookkeeping

The single-entry system is often the system of choice for small business owners. It is less complex than other systems, but it’s also challenging to keep track of vast volumes of data. It is called a single-entry data system because each item enters the accounting records. It is mainly helpful to record cash transactions as other types of transactions become too complicated. For this reason, a large firm should avoid using it.

Double-entry bookkeeping is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. The double-entry system has two equal and corresponding sides known as debit and credit. A transaction in double-entry bookkeeping always affects at least two accounts, includes at least one debit and one credit, and always has total debits and equal total credits. It is based on the concept of the accounting equation. Suppose the debit and credit sides do not tally. In that case, the accounting equation tells you your mistakes while recording the transactions if the debit and credit sides do not tally. It is a beneficial tool that beginners could use to check their mistakes.

Difference Between Bookkeeping and Accounting

• Bookkeeping
• Accounting

1. Bookkeeping is related to the recording, measuring, and identifying the financial data of a company. Whereas, accounting is the process wherein the company’s financial data is summarized, and a report is prepared.
2. Management doesn’t take any financial decisions by analyzing the records of bookkeeping. However, the management decides upon financial decisions after reading the summary report obtained by accounting.
3. The purpose of bookkeeping is to record the financial transactions of the business. Whereas, the purpose of accounting is to analyze the financial transaction and make future financial decisions accordingly. 
4. Bookkeeping generally requires basic knowledge of accounting but there are specific examinations in India and across the globe that a person has to pass to become a certified accountant.
5. Accounting uses bookkeeping records to analyze the financial data to prepare reports.
6. There are two systems of bookkeeping, single entry and double entry systems, whereas, in accounting there are financial accounting and forensic accounting.

Conclusion

In this article, we learned about the meaning of accounting and bookkeeping and the different types of accounting and bookkeeping systems. In the end, we got to know the overall difference between the two concepts.