Accounting and Bookkeeping are essential tools which help businesses maintain and prepare important financial data. For every business, it is vital to understand all concepts and procedures related to accounting and bookkeeping.
Accounting and Bookkeeping are interlinked, with the latter considered a basic branch of the former. Accounting essentially deals with recording, reporting, summarizing and interpreting financial data, while bookkeeping is the start-up point of accounting, which refers to the recording of daily transactions of a business. Both then are used to evaluate the performance of a company and communicate the overall business health to the owners and other shareholders.
Whenever a transaction takes place, it is the work of the bookkeepers to record it on a day-to-day basis. For small businesses, the traditional method is still used where bookkeepers are hired to insure that all business transactions have been noted in accounting books, known as journals and ledgers. The important fact is that the recording is done in a chronological or sequential manner in order to avoid ambiguity.
In larger companies, these bookkeepers or accounting clerks may use software to do the same. However, for a business, the financial work has just started. This information will then be used to prepare financial statements such as the balance sheet, profit and loss, income statement etc, and then will be evaluated and interpreted to gauge the true financial health of the company. That is the whole accounting process, which will be taken upon by highly qualified or licensed accountants.
As both cannot be used separately when determining the financial health of the company, the difference more or less will be between skilled and unskilled labor. Bookkeeping can be carried out by any individual, irrespective of his or her qualifications as the task is not skill based. However, in order to work for a reputable company and analyze their financial statements, you must be a certified public accountant or must earn at least a bachelor’s degree. An accountant will simply oversee the work of bookkeepers and assist them in handling multiple data. Accountants will further have to follow General Accounting Principles on a larger scale as compared to bookkeepers, who are simply applying the basic accounting principle of single-entry, or double entry bookkeeping.