Bookkeeping and accounting are closely related but serve different functions within the financial management of a business. Here are the key distinctions between bookkeeping and accounting:
SCOPE OF ACTIVITIES
Bookkeeping is keeping track of every financial transaction made by a business. It includes tasks such as recording sales and expenses, reconciling bank statements, and managing accounts payable and accounts receivable.
Accounting encompasses a broader set of activities, including interpreting, analyzing, classifying, summarizing, and reporting financial information. Accounting involves making sense of the recorded data, preparing financial statements, and providing insights for decision-making.
NATURE OF TASKS:
Bookkeeping focuses on the day-to-day financial transactions and maintaining accurate records. It is more transactional and procedural. GST and payroll filing is mostly done by a bookkeeper.
Accounting involves a more analytical and interpretative role. Accountants use the data generated by bookkeepers to create financial reports, analyze trends, and provide strategic advice. An accountant prepares year-end financial statements and accounts for the company and files these with the IRD. The year-end reports prepared by the accountant have to adhere to the standards.
TIMING
Bookkeeping generally involves daily or routine tasks to keep financial records up-to-date.
Accounting often involves periodic tasks, such as yearly financial analysis and reporting.
GOAL
Bookkeeping aims to keep an accurate and detailed record of financial transactions. It lays the foundation for accounting processes.
Accounting aims to provide a comprehensive understanding of a company's financial health, profitability, and performance. It involves interpreting financial data to inform business decisions.
TOOLS AND SOFTWARE
Bookkeeping typically involves the use of basic tools and software for recording transactions, such as spreadsheets or accounting software. Depending on the type of accounting system used by the business, each financial transaction needs to have supporting documentation. That documentation may be a receipt, an invoice, a purchase order, or similar. Bookkeeping can be done manually or electronically.
Accounting requires more advanced accounting software and tools that can handle complex financial analyses and generate detailed financial statements.
EDUCATION AND CERTIFICATION
Bookkeeping: Generally, a formal education may not be required for bookkeeping roles. Bookkeepers may have certifications or experience in basic accounting principles.
Accounting: Accountants often have a higher level of education, such as a degree in accounting, finance, or a related field. Many accountants also pursue professional certifications like CPA (Certified Public Accountant) or ACCA (Association of Chartered Certified Accountants).
In summary, while bookkeeping is concerned with the systematic recording of financial transactions, accounting involves a more comprehensive analysis and interpretation of financial data to provide insights for decision-making. Both functions are crucial for the financial health and management of a business, and they often work hand-in-hand to ensure accurate and meaningful financial information.
If you would like to discuss this or need any further information or assistance please contact Fiona Tate on 0226 739638 or email contact@sortedout.co.nz
If you would like to discuss this or need any further information or assistance please contact Fiona Tate on 0226 739638 or email contact@sortedout.co.nz