It’s very important to keep track of your books. It’s the only way you’ll be able to measure the profitability of your business. In other words, there are only two reasons that a business can go bankrupt. First is when the owner doesn’t have enough money to pay the bills. The second is when there’s a discrepancy in the books. That being said, bookkeeping and accounting are critical things to consider as a business owner.
Have you ever wondered what the differences between bookkeeping and accounting are? Well, they differ in the following aspects:
Bookkeeping is a very important aspect of any company’s financial performance. It records financial activity into specific categories. The term bookkeeping, however, has several different meanings. It generally refers to the recording of financial transactions by an accounting professional who makes reports to the owners of the company or through some other third party.
Financial records are prepared by identifying the parties involved in the financial transactions that took place. This includes:
- The seller and the buyer
- The seller and the intermediary who assisted both parties in making the transaction
- The creditor and the borrower
- The employer and the employee
- The owner of the property and the tenants in the property
All of these are recorded and are categorized into various types.
On the other hand, the term accounting refers to the preparation of a balance sheet and the statement of income of a business or an individual. The balance sheet usually contains information on income earned by the business or a person, as well as the assets owned and liabilities they have. The statement of income also contains information on cash flows from sources and the value of those sources. The statement of income provides information on how much an organization or an individual earns, and the amount of money it invests in order to earn those earnings.
A company’s balance sheet provides an accounting picture of the relationship between the business and its sources of income, as well as its sources of investment capital and its borrowing capacity. It also allows a business to calculate and monitor the cash flows from its sources. That’s why accounting can be of great help in planning your finances, whether as an individual or a business owner.
Bookkeeping is primarily concerned with ensuring accurate data is present and recording financial transactions. The main objective of bookkeeping consists of keeping a clear and accurate record of financial transactions on a particular day. Bookkeeping has a number of methods, including manual or semi-custom, automatic or semi-automatic. It also provides valuable information regarding business operations. By keeping records of financial transactions, bookkeepers can understand, analyze, and measure the performance of a company.
The objective of accounting, on the other hand, is to identify the reason for an enterprise’s action within a particular economic period. Objectives of various accounts and financial analysis in an organization are:
- Categorizing and classifying transactions
- Calculating profits
- Analyzing the financial condition
- Helping in decision-making with financial information on the company’s financial position
In order to obtain a clear picture of the company’s objectives, the accountant must be clear about what the objective actually is.
- Skills Required
The skills required in bookkeeping are diverse, but the core principles that govern financial activity are uniform. All bookkeepers should begin with a basic level of understanding of what’s being recorded. The process of keeping books can be divided into three primary stages: collecting data, preparing them, and storing them. The key to keeping the records straight is to understand exactly what they contain. This can only be achieved if the information collected is correctly organized. It should also be kept up-to-date so that no mistakes are made.
On the other hand, practical accounting skills include accounting systems, budgeting, bookkeeping, analysis of accounting data, financial management, etc. An individual should be able to understand the principles of accounting, and also be able to put them into practice. An accountant who is good at theory has to keep their mind focused on the real problems facing an organization. The ability to manage a budget is very important, and an accountant should know how to keep track of expenses, incomes, assets, liabilities, and so on.
If you don’t have the right knowledge and information, you may lose your business because you may have made wrong calculations in the accounts. The important thing you need to keep in mind is that the success or failure of a business depends on how well the books are prepared. Otherwise, you’ll find yourself in big trouble. Without bookkeeping, a business owner will be unable to accurately predict their profit and loss. Without proper accounting, they’ll be unable to make sound decisions about what to buy, what to sell, or even how to handle customer relationships.