Many think and often get confused between the terms: accounting and bookkeeping. But, the reality is that they are entirely different things, although they are closely and quite intricately related. That is why the terms are confusing among the SMEs.
To begin, remember that accounting is understood as the discipline that will teach you the rules, as well as the procedures to be able to order, catalogue and analyze the financial transactions. However, bookkeeping is the method to record the economic and financial operations carried out by Bookkeeping Service Providers or some individual. The accountant is in charge of these monetary functions and is the fundamental base so that the finances make sense. Bookkeeping is the art and science of managing money.
The primary idea between accounting and bookkeeping
As you can see, bookkeeping can be understood as a branch of accounting and finance. And that is why it should not always be viewed equally in an organization. Although, that does not mean that the same person is responsible for both parties. Companies can hire Accounting Outsourcing Services online at affordable prices. Look at an organization chart of a company, and you will notice that bookkeeping will always be above accounting. But beware, this does not mean that one is better than the other; both parties fulfil a specific function. And without accounting, bookkeeping could not exist.
BOOKKEEPING: The definition and value
It is a daily process: summarizing, registering daily financial processes, classifying accounting information, company transactions, etc. Consequently, annotations can be kept as clear as possible. Bookkeeping refers to the preparation of accounting records, which is why it allows obtaining the data, adjusted to accounting principles, used to assess the situation and get the relevant financial information of an entity. Modern accounting consists of a cycle of seven stages. Among them, the first three refer to bookkeeping. That is the systematic compilation and recording of financial transactions.
Bookkeeping: as an example to understand it better
So, now that you know what bookkeeping is, here is an example for you. In the companies, the accounts department is the one which keeps the details of the finances. When the month begins, it prepares a budget listing of all the payments to be made and the monthly income. Once a year, the company must file the taxes, monthly income and expenses, etc. And this is where the financial tracking pays off. It has all the required information within reach and in an orderly manner. If you keep track of expenses, it will help you to track the investments, expenses and income. Most companies outsource bookkeeping services to do the job: tracking of all the financial details.
THE ACCOUNTING: The definition and value
However, accounting is the technique to deal with recording business operations while summarizing and classifying its results. It allows knowing the stability and solvency of the company, the current of collections and payments, the trends of sales, costs and general expenses, etc. so that the financial capacity of the company can be known. In turn, accounting is a process by which the financial information of an organization or company is identified, measured, recorded and communicated so that managers can assess the entity’s situation. Accounting is the administrative science that aims to study the principles, laws and theories of methods and means. Accounting is of great importance to the operations of a company.
Bookkeeping is a branch of accounting, but different
The role of bookkeeping and accounting are closely related but quite different. Bookkeepers work to match company and bank records, in addition to reconciling account statements monthly. Bookkeeping is an area of any business where shortcuts must not be taken or disorganized. Regardless of the method you use to complete bookkeeping (spreadsheets, accounting paper, accounting software, etc.), the main accounting book must be updated frequently.
Bookkeepers typically have experience and an associate’s degree, maintain and balance accounts, keep accurate records, sort documents for the tax return, income from debits and credits. Accountants must obtain a bachelor’s degree, analyze the overall health of finances by reviewing records, make record-based financial forecasts, prepare annual personal and business tax returns, make entry adjustments, and audit as needed throughout the year.
Conclusion: Those who do not control do not manage
In addition to being a management tool, regular bookkeeping can be of great value in some unexpected moments. In legal cases, it can be used as evidence in the court of facts that depend on accounting expertise. If you ever face labour claims, judicial recovery, fraud or corporate disputes, you will want to count on the benefits of bookkeeping in your favour.
With well-done bookkeeping, you are free from surprises about the company’s real financial situation, which facilitates decision-making and the execution of the company’s action plan. It is this information that will enable better tax planning to pay fewer taxes, monitor the evolution of revenues and expenses and define performance indicators that are important for business success.