Table of Contents
The Difference
Between Bookkeeping Accounting and Accountancy
The world of finance is ruled by bookkeeping, accounting, and accountancy. These are the three terms that normally come up when it comes to financial management for businesses of all types. Therefore, it is important to learn the aspects that distinguish these trio. It is important for someone involved in any sort of management concerned with business accounting and finance; these can be students learning these concepts in their coursework, business owners, and finance professionals as well. All of these aspects play a key role in getting accuracy in your financial management and keeping you compliant with the regulations that matter.
Understanding bookkeeping in terms of business needs
Bookkeeping is the most fundamental function when doing financial organization for a business. It is comprised of keeping your financial proceedings accurate in an organization. The reason bookkeeping exists is to generate a clear financial record for all the financial transactions related to a business. These financial transactions are as follows:
Classification: Classification is all about making sure that the financial proceedings are correctly categorized according to their type. These are assets, liabilities, income and expenses. This makes the job of the accountants easier for getting the financial reports ready.
Transaction Reporting: Â This can be defined as the recording of daily financial transaction of a business like payments to vendors, purchases and their receipts. The transaction reporting is recorded in journals and ledgers.
Balance Sheet: Bookkeepers don’t necessarily do the management of tricky financial reports, they rather prepare the balance sheet by using important financial statements like the income statement, expenses and other reported transactions.
Ledger Reconciliation: Reconciliation can be thought of as rechecking a businesses financial reports to make sure everything is matching the bank statements and is accurate. This is really beneficial in finding out inconsistencies in the data.
Bookkeeping Software: Bookkeeping nowadays is done using industry standard software which is the cloud based accounting software known as Quickbooks, Xero, etc.
Role of a bookkeeper
The main role of a bookkeeper is to make sure that all the financial proceedings are correctly recorded in the books. The reporting and recording of accounts payable incorporate the funds that your business owes and accounts receivable, which are money that others owe to your small business. A bookkeeper is also responsible for organizing the payroll data so that every employee is paid accurately and on time. Lastly, calculating and recording the most basic financial statements of a business, like revenue, expenses, net income, income statements, and invoices, are all created by a bookkeeper.
Understanding Accounting
Accounting is all done on the basis of the data interpreted by a bookkeeper. As we know by now that bookkeeping is centered around accuracy of the financial data, accounting on the other hand is about calculating, segmenting and assessing that financial data for making important company decision based on the detailed reports.
The Role of an Accountant
Accountants are responsible for using the data and information gathered by the bookkeepers to generate financial reports, create tax reports, assist their firm in audits, and ultimately provide financial advice to the business they are working for. There are multiple accounting principles and standards utilized, like IFRS ( International Financial Reporting Standards ), to make sure there is no compromise on the accuracy, consistency, and credibility of the financial data. Following are some of the important traits of an accountant:
Financial Recording: Accounting practices create comprehensive financial records which incorporates financial information like cash flow statements, income statements and balance sheets. The purpose of these reports is to provide an overview of a businesses current financial position and financial health.
Financial Assessment: Apart from just reporting the data, accountants also assess it based on the finance trends, judge the financial performance and evaluate risks. This is also termed as risk management.
Tax Preparation: An accounting employee is also in charge of initiating and filing tax returns for people and businesses alike. This is done to keep them compliant with state and local tax rules and regulations.
Auditors: Accounting also incorporates auditing which is done to make sure that business transactions and financial proceedings are accurate and in compliance with regal and regulation authorities. Audits are of two types, an internal audit or an external audit which is performed by an outsider.
Management: Accounting involves the overseeing of financial proceedings to make better decisions regarding company resource allocation and budgeting. Accounting provides details about profits, losses, financial planning ways, etc.
An accountant is considered as a more qualified individual as compared to a bookkeeper. These individuals have a degree in accounting in which they are taught about finance and accounting laws, tax laws and other important aspects regarding financial accounting. Accountants also have professional certifications like CPA ( Certified Public Accountant ), Chartered Certified Accountant (ACCA), etc.
Key Traits of an Accountant
Compliance: Accountancy is rule by professionals who are educated regarding ethics and legal standards of accounting. Accountant normally have working experience about both bookkeeping and accounting. Therefore, they know how to comply and adhere to the rules and guidelines for ensuring credibility and compliance with the legal authorities.
Decision Makers: These professionals can also offer your business advisory services regarding the finance and accounting departments. This includes aspects like budgeting, financial management, etc.
Regulation: Â This means that an accountant is well equipped to deal with multiple regulation and standards, which includes both local and federal standards.
Key Differences between bookkeeping and accounting: accountancy
Bookkeeping and accounting is about reporting and recording the financial proceedings. Accountancy on the other hand is a designation that uses both bookkeeping and accounting with a focus on compliance and advisory services.
In terms of the qualifications, bookkeeping doesn’t require any professional qualification, accounting and accountancy is all about getting professional certifications like CPA, CA or ACCA.
The scope of an accountant is to use the bookkeeping data and prepare it into comprehensive reports for allowing investors and other stakeholders to make data driven decisions.
Final Words
Bookkeeping, accounting and accountancy is all related to the financial process. The more accurate a bookkeeper, and accountant work, the more precise and clear the financial data will be.
To be clear, bookkeeping is the basic building block of accounting and accountancy, which incorporates some additional qualifications, etc. Accounting and accountancy are two terms used interchangeably as well.
All three of these play an important role in shaping the finance department of a business so that it is in compliance with the regulations, and people concerned can make better informed decisions.
We hope that this article was beneficial for you in understanding the comprehensive differences about these three aspects as they are the backbone of accounting and finance.
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