ETC Consulting, Inc.

The Difference Between Accounting and Bookkeeping

There is often a confusion over the difference between accounting and bookkeeping This is because both activities have an inter-relatedness that is sometimes difficult to ascertain

It comes down to financial analysis versus creating and recording transactions

“Bookkeeping is a technical aspect of recording, classifying, and summarizing a transaction It means that bookkeeping does not use any analysis during these stages of recording,” as excerpted from http://simplestudies com

Let me give you a scenario: You (Owner of Business) have a stack of receipts, bills from vendors, deposit tickets from the deposits you have made to the bank and periodical bank statements You may be thinking about expanding your business; or purchasing another business; selling or getting a bank loan, or any other myriad of reasons, for which you need a set of Financial Statements

You choose to bring your documents to an “accounting” office for them to prepare a set of financial statements Someone will perform the following duties and provide a set of Financial Statements when finished

• Organize purchase orders with vendor bills;
• Enter these vendor bills;
• Organize purchase orders from customers;
• And, then with bills of lading (shipping documents) and make-ready for billing
• Create invoices to your customers;
• Receive monies from your customers;
• Prepare bank deposits and take to the bank;
• Reconcile the bank account

Along the way, if the bookkeeper has questions, they will typically refer you to a tax preparer/an Accountant or Certified Public Accountant to provide the “Design” of this “System of Record ” Hence the task of recording transactions is typically “Bookkeeping ” The Accountant takes over where the Book-keeper leaves off and generates a set of Financial Statements; Balance Sheet, Profit and Loss and Cash Flow Statement and analyses them for completeness and interprets them and provides you (the Owner) information for your decision-making Financial analysis, such as Gross Profit Margin, Current Ratio, etc These are the further in-depth functions of an Accountant