The function of bookkeeping and accounting seems too much identical for many of us who don’t have proficient knowledge about these areas. Though the activities look similar, these two are two different departments, and two different types of expertise are necessary to maintain these departments.
Well, it’s not a crime if you can’t tell the difference between a bookkeeper and an accountant. But, if you are going to run a business, you must know the difference well enough. In this article, we try to discuss the significant difference between accounting and bookkeeping. I hope a quick look will give you an overall idea and further interest in these topics.
The Role of Bookkeeping in Business
Bookkeeping is the process of recording a company’s financial transactions on a day to day basis. The transaction includes sales, purchases, payments, and receipts by an organization or individuals.
In a short, bookkeeping is comprised of:
- Recording monetary transaction
- Reporting credits and debits
- Finalizing payroll
- Generating invoices
- Maintaining and leveling historical accounts, general ledger, and subsidiaries.
The Role of Accounting in Business
Accounting is a process of methodically measuring, recording, and communicating information about monetary transactions.
In a short, accounting is comprised of:
- Developing the company’s financial statement
- Studying costs of operations
- Finalizing income tax returns.
- Helping the business owners to take significant financial decision
- Showing the financial position of the company
Bookkeeping Vs. Accounting
Now that you have a brief idea about bookkeeping and accounting, we are pointing out some key differences that will help you to resolve confusion between these two departments. This is mandatory for you to know to have a clear understanding of tax service in Toronto.
| Bookkeeping | Accounting | |
| Definition | Bookkeeping is a process me suring, identifying, and recording economic transactions. | Accounting is the process of measuring, recording, and communicating information about economic transactions. |
| Necessary tools | Journals & ledgers | Balance sheet, cash flow statements. |
| Required skill and qualification | No qualification is necessary to be a bookkeeper. But accounting knowledge is essential. | Professional degree in accounting. |
| Complexity level | Low | High |
| Financial decision | Can’t be made based on bookkeeping. | By analyzing accounting records, you can make important financial decisions. |
| Analysis | Bookkeeping doesn’t require any analysis. | Accounting basically analyzes and interprets bookkeeping information and then compiles it to the report. |
| Methods | Two methods of bookkeeping- single entry and double entry | Two systems of financial recording- single entry and double entry |
| Objectives | To keep all the financial transactions of the company accurate, simple and systematic. | To obtain and oversee bookkeeping data and analyze them to calculate all kinds of financial situations that the company is in. |
Why Should You Outsource Bookkeeping and Accounting?
There is always a debate on whether you should hire a bookkeeper and accountant or outsource bookkeeping and accounting services. Well, there is no straight answer to that. Though we can’t give you any simple answer, we can show you some benefits of outsourcing these services-
- Outsourcing accounting and bookkeeping will save you some money. As the firms are solely dedicated their service to these sectors, they can manage to offer these services at a comparatively low price.
- If you can manage to outsource these services from a reliable firm, you will be guaranteed to have a reliable service.
- It’s always healthy if you can manage to separate your office work from accounting and bookkeeping works.
- Outsourcing this service will also help you to give peace of mind and save you from conducting some crucial interviews to hire an accountant or bookkeeper.
The Bottom Line
Bookkeeping is basically acquiring data, and accounting is to analyze that data to make a financial decision. So, the two are different but also closely related to one another. If you want a solid run for your business or company, you need to make these two departments transparent and robust.
Some companies try to merge bookkeeping and accounting. There are some benefits to doing that. An accurate bookkeeping and reliable accounting is a boon to your business. For personal or corporate tax service in Toronto, call us now.
