Bookkeeping is an activity related to the recording of the financial data relating to business operation in a significant and orderly manner. It covers the procedural aspect of the record-keeping function. Financial statements are the end product of the bookkeeping and record-keeping function.
A bookkeeper is responsible for keeping all record of the business or its segments, like customers’ accounts, suppliers’ accounts etc. A substantial nature of the book keeper’s work is of clerical in nature. Accounting is based on the careful and efficient book-keeping system.
The main purpose of maintaining book-keeping records is to show the correct position of each head of income and expense. For example, a proprietor purchases goods on cash and credit. When he purchases on credit terms he will like to know that from time to time, to whom and how much amount is due to be paid. If proper records are not maintained, it will be difficult to get the proper detail of each transaction.
At the end of the accounting period, the proprietor wants to know the profit earned or loss suffered in the business activity. For this purpose, a lot of information is needed which be obtained from the proper system of record keeping. Hence, bookkeeping is the indispensable part of any business activity.
How accounting is different than bookkeeping?
There is a misconception among common people that book-keeping and accounting are synonym terms. But, these two terms are absolutely different. Accounting is a broader term than bookkeeping. Accounting needs a greater understanding of records obtained from book-keeping and an ability to analyse and interpret the information supplied by book-keeping records.
Bookkeeping is the recording phase whereas accounting is concerned with the summarising phase of the accounting system. We can simply say that accounting follows bookkeeping.
Now we shall elaborate on some important differences between accounting and bookkeeping:
|1.||It is a process concerned with the recording of transactions.||It is a process concerned with the summarising of recorded transactions.|
|2.||It provides the base for accounting.||It is considered as the language of business.|
|3.||It is not part of the financial statement.||Financial statements are prepared in the process of accounting on the basis of book-keeping records.|
|4.||It does not help the management in decision making.||Management takes decisions on the basis of accounting records.|
|5.||There is no sun field of accounting.||There are a lot of sub-fields of financial accounting like financial accounting, corporate accounting cost and management accounting, etc.|
|6.||Financial position of business cannot be assessed through the book-keeping record.||Financial position of business organisation is ascertained on the basis of accounting record.|
|7.||It does not require a high level of skill and knowledge to managing bookkeeping record.||Good knowledge and experience are required to prepare and manage the accounting record.|
Hence, we can see that accounting and book-keeping are different terms. Yet, there is an inter-relationship between accounting and book-keeping. Accounting depends on book-keeping records and there is no use of book-keeping records if there is no accounting. Both accounting and book-keeping are complementary to each other.