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.
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 analyze 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:
|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.|
|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.|
|5.||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 permanent record of each business transaction with its evidence and financial effects on 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.
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.
Examples of Bookkeeping Tasks
- Billing for goods sold or services provided to clients.
- Recording receipts from customers.
- Verifying and recording invoices from suppliers.
- Recording payment made to suppliers.
- Processing employees pay, ESI, PF etc.,
- Monitoring individual accounts receivable.
- Recording depreciation and other adjusting entries.
- Providing financial reports.