Bookkeeping and accounting both are essential functions required for a business. This article will focus on the differences between these two and also judging which one in better.
Since every business entity needs to maintain a systematic record of business transactions, the activity also includes preserving the records of business events which are of a financial character in a chronological order. This in turn leads to provide a presentation of complete financial information of a business organization to the required users.
At this stage, it is important to know and understand the meaning of a business transaction. A business transaction may be defined as an instance of doing business that affects a business showing what is owned and owed. Yet more, it is an exchange of money or money’s worth. Such as, purchase made in a shop or withdrawal of funds from a bank, sale and purchase of goods and payments of cash etc. It thus an event that is not expressed in terms of money is not to be recorded in the books of accounting.
In this way, book keeping is the first stage to keep up the accounts of a business entity.
It is concerned with recording business transactions in accordance with the principles of accountancy. In spite of the fact that the task of book keeping is clerical in nature, it is very important activity to ascertain the net results and financial position of a business. Bookkeeping provides accurate and complete information of business transactions. It is on the basis of this activity that not only the financial statements are to be prepared being summarized, but also a comparative study of financial statements is to be undertaken. It also facilitates to perform the task of budgeting and costing including other purposes. Since it is impossible to remember numerous business transactions during a period of time, book keeping rules out remembering business transactions enabling one to maintain a permanent record of each transaction.
As regards accounting, it may be defined as the art and science of recording, classifying, summarizing and analyzing the events of financial nature. It is therefore accounting is taken in a broader sense, as the task of accounting is performed by a person who has more authority than the one who carries out the activity of book keeping.
According to American accounting association, accounting has been defined as, “The process of identifying, measuring, and communicating information to permit judgment and decision by the users.” Yet another definition of American Institute of Certified Public Accountants (AICPA) is that “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character and interpreting the results thereof.”
The task of accounting, as it has been pointed out, necessitates interpreting the information of financial character to provide the net results thereof and the financial position of a business to the intended parties. The profit or loss (Income Statement) of a particular period, and the financial position (Balance Sheet) of a business at a particular date are ascertained with the help of accounting. Further, it leads to make financial analysis and interpretation of financial information.
It may be rightly said that the activity of accounting starts on the basis of book keeping. It thus may be regarded that both book keeping and accounting are corresponding to each other. The former is incomplete without the latter and vice versa. as there cannot be an activity of summarizing and analyzing and interpreting, unless the events of a business are recorded in a timely and accurate manner. Merely recording the business events does not provide any results of a business. Hence, both ought to be there for a business to run with accuracy, efficiency and effectiveness.
Whether it's bookkeeping or accounting, it's ever green field, as it meets the demands of trade, commerce and industry. The individuals who can perform either or both activities in an efficient manner are always in demand, because every organization, whether it be, profit, nonprofit, charitable or Government needs the services of such professionals.
The term, accounting cycle, is commonly referred to as accounting process or the steps involved for all the business activities during an accounting period. It’s a standard practice in financial accounting that allows an organization to record and calculate its financial activities appropriately.
Accounting is the process of recording, classifying and summarizing the information that is of financial character. It’s a systematic and scientific recording system.
This is replete with fact that studying a major is one thing and applying that knowledge to real world situations is entirely another. Before you face the problem with experience paradox, that is, you need to show your experience to get a job and experience is not attained without a job or without performing those activities that are counted in the range of experience, you should consider to go for accounting internship..