What is the Difference Between Accounting and Bookkeeping?

When someone says they are an accountant, are they really a bookkeeper? Does it really matter? Does it really matter that we sometimes say 'accounting' and sometimes 'bookkeeping'? In this short article we will look at the difference between the two terms.

What is Bookkeeping?

Bookkeeping is the process of recording, in a systematic way, the financial transactions of a business, in order to show how the transactions relate to each other. Bookkeeping is primarily a mechanical process and does not involve any analysis of the financial transactions, but rather the recording of them. Traditionally, the financial records were kept in a book, hence the name bookkeeping.

These days, bookkeeping is often performed using a bookkeeping software application, but the names of the books (daybook, ledger, cashbook, and journal) are still used in many bookkeeping software applications. A bookkeeper's purpose is largely one of recording transactions in the journal and posting to the ledger. A bookkeeper is sometimes referred to as an accounts clerk. There are two types of bookkeeping: single entry and double-entry.

In single entry bookkeeping, the record of each transaction is carried to either the debit or credit column of a single account. In double-entry bookkeeping, two entries of each transaction are carried to the ledger: one to the debit side, and one to the credit side, of the corresponding account. This enables the two entries to be used to check each other.

So, if you are a contractor or a sole trader using software such as MyBookkeepingManager to record financial transactions, you are performing a bookkeeping activity rather than an accounting one because you are not carrying out any analysis of the data.

What is Accounting?

Accounting is the systematic recording, reporting, and analysis of financial transactions of a business. As bookkeeping involves making a financial record of business transactions, it is fair to say that the role of bookkeeping is encompassed within the scope of accounting, and the bookkeeping system used by a business would form part of the accounting system.

Accounting also includes the preparation of statements concerning assets, liabilities and the operating results of a business. Accountancy is the occupation related to accounting, and an accountant is the person who does, or at least is responsible for, the work. For example, if you are a contractor or sole trader, it is unlikely that your accountant will be processing your PAYE (Pay As You Earn) payslips; it is far more likely that an accounts clerk will be carrying out this (mechanical) task.

Accountants often specialize in a particular area of accounting such as taxes, auditing, or management. In a small company, all of the bookkeeping and accounting tasks may well be performed by a single person. In this situation, that person would normally be referred to as an accountant.

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