How is bookkeeping different from accounting?

April 17, 2010

1. Bookkeeping and accounting

Bookkeeping represents a process of recording actual transactions of a business. Bookkeeping does not involve any analysis of the accounting data. Bookkeeping is an integral part of accounting, and thus, it prepares necessary financial information for accounting. Bookkeeping includes recording, classifying and summarizing data.

Accounting is a more complex concept that means reflection of the results of transactions according to the principles, standards, and statutory requirements in the financial statements and other business reports.

Accounting includes the following stages:

  • recording;
  • classifying;
  • summarizing; and
  • interpreting accounting data.

Recording is the stage of the accounting cycle when transactions are recorded in the books. Classification means sorting transactions into meaningful groups. Summarizing consists of accumulation and systematization of accounting data. Interpretation refers to processing and analyzing financial data (e.g. financial statements or budgets prepared) for further decision making.

Bookkeeping is a technical (i.e. mechanical, manual) aspect of recording, classifying, and summarizing a transaction. It means that bookkeeping does not use any analysis during the stages of recording, classifying and summarizing accounting data.

2. Explanation of differences between accountants and bookkeepers

One old joke says that the difference between an accountant and a bookkeeper is about $200 per hour. But the truth is that accounting tasks are performed by more experienced staff, usually with a college degree and specific training in accounting. Accounting requires deep knowledge of accounting and financial analysis and good analytical skills. Refer to the table below to see the summarized differences between bookkeeping and accounting:

Illustration 1: Differences between bookkeeping and accounting

Difference

Bookkeeping

Accounting

Performed by

A bookkeeper

An accountant

Purpose

Record, classify and summarize transactions

Interpret, prepare financial statements, etc.

Results used by

Accountants

Internal (management, employees) and external users (owners, creditor, banks, etc.)

Methods used / principals applied

Single-entry bookkeeping system, Double-entry bookkeeping system

GAAP, IFRS, etc.

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