Difference between Bookkeeping and Accounting

Bookkeeping or books of original entry is a science and art of recording all the business transactions that result in a transfer of money or money’s worth’ in the accounts books. Bookkeeping is a task concerned with recording and classifying financial data related to business operation in order of its occurrence. Bookkeeping and accounting are inseparable and there is a thin line to differentiate bookkeeping and accounting.

What is Bookkeeping and Accounting?

Bookkeeping and accounting are both essential for managing business finances, but they serve different purposes. Where bookkeeping involves in recording and organizing all the business transactions that have occurred in the course of the business. Accounting helps systematically recording, analyzing, and reporting financial transactions of a business. It ensures every expense and income is properly tracked, making it easier to pull out data when needed for taxes, audits, or strategic planning. Bookkeeping is an integral part of accounting and largely focuses on recording day-to-day financial transaction of the business.

Difference between Bookkeeping and Accounting

Accounting is a broad subject. It calls for a greater understanding of records obtained from bookkeeping and an ability to analyse and interpret the information provided by bookkeeping records.

Bookkeeping is the recording phase while accounting is concerned with the summarizing phase of an accounting system. Bookkeeping provides necessary data for accounting and accounting starts where bookkeeping ends.

The distinction between Bookkeeping and accounting can be tabulated as under:

S.No	Bookkeeping	Accounting
1.	Yield of bookkeeping is an input for accounting.	The yield of accounting permits informed judgments and decisions by the user of accounting information.
2.	Purpose of bookkeeping is to keep a systematic record of transactions and events of financial character in order of its occurrence.	Purpose of accounting is to find results of the operating activity of business and to report the financial strength of a business.
3.	Bookkeeping is a foundation of accounting. It is done by bookkeepers, who do not require any special skill or knowledge	Accounting is considered as a language of business. Accountants, on the other hand, require special accounting knowledge and skills.
4.	The objective of bookkeeping is to summarize the cumulative effect of all economic transactions of business for a given period. This is done by maintaining a permanent record of each business transaction with its evidence and financial effects on the accounting variable.	The objective of accounting is not only bookkeeping but also analysing and interpreting reported financial information for informed decisions.

Importance of bookkeeping

Bookkeeping helps to keep track of receipts, payments and record of every expenditure made from the business.
It helps to summarize the income and expenditure records on a periodic basis.
This records are used to create financial reports which tells us specific information about the business as how much profits the business has made or how much the business is worth at a specific point of time.

Importance of Accounting

Accounting holds critical value for businesses by providing accurate financial insights, ensuring regulatory compliance, and driving strategic growth.

Enables informed decision-making through financial reports like profit/loss statements, guiding budgeting, investments, and cost controls.
Ensures legal compliance with tax laws (e.g., GST in India) and prepares mandatory filings, avoiding penalties and audits.
Tracks performance via KPIs, detects fraud, and benchmarks against industry standards for operational improvements.
Optimizes cash flow and resource allocation, reducing waste in areas like excess inventory via ratios.
Supports growth by attracting investors/lenders with transparent records and enabling forecasting in tools like TallyPrime.

Bookkeeping process

Bookkeeping is a mechanical task which involves the following steps:

Collection of basic financial information.
Identification of events and transactions with financial character i.e., economic transactions.
Measurement of economic transactions in terms of money.
Recording financial effects of economic transactions in order of its occurrence.
Classifying effects of economic transactions.
Preparing an organized statement known as trial balance.

Accounting Process

Collect and analyze all financial events like sales, purchases, or payments that impact the business, using source documents such as invoices.
Enter transactions chronologically in journals with debits and credits, maintaining double-entry balance.
Transfer journal details to individual ledger accounts for a categorized view of each asset, liability, or equity.
List all ledger balances to verify debits equal credits and detect basic errors.
Record accruals, deferrals, depreciation, or prepayments to align with accrual accounting principles.
Update and recheck balances post-adjustments for accuracy before statements.
Create income statement, balance sheet, cash flow statement, and equity statement from adjusted data.
Zero out temporary revenue/expense accounts, transfer to retained earnings, and prepare for the next cycle.