What are differences between bookkeeping and accounting?

Bookkeeping and Accounting

Bookkeeping and Accounting methods have been used for thousands of years to record and track financial transactions and data. Bas Group is very important.They track the finances of business accounts. Both are processes that require a knowledge of finances, classifications, and financial report generation. A bachelor’s degree is required for some types of accountants. Otherwise, only a basic understanding of financial knowledge and record keeping is enough.

Bookkeeping

In 8000 B.C., crude forms of bookkeeping were developed to track the accounts of properties owned by kings. Ancient clay tablets used for contracts were discovered in Assyria and Babylon that date back to 4000 B.C. The tablets contained business and community contracts that included borrowing, lending, and marriage dowries. With the evolution of trade and merchandising, more complex forms of bookkeeping were developed. In 1445, an Italian mathematician named Frater Luca Pacioli became a Franciscan friar and earned a doctoral degree in 1486. He is hailed as the father of bookkeeping because of his accomplishments in the field of mathematics. He codified and wrote the book on both practices of recording financial transactions. According to the American Heritage College dictionary, bookkeeping is the practice and profession of recording business transactions. Bookkeeping is used by every business, nonprofit organizations, homeowners, and schools. Degree programs in bookkeeping are offered at colleges and universities. The process of bookkeeping identifies, measures, and records financial transactions properly and systematically. The result of this process is recordkeeping and not the preparation of financial statements. Since no special skill set is required for bookkeeping, management does not make decisions based on bookkeeping data. The records that result from bookkeeping do not need analysis. Accuracy and some financial knowledge are required by bookkeepers, who are overseen by an accountant. The two types of bookkeeping are single entry and double entry. The types of accounts that bookkeepers to track and organize financial data include: • Cash – tracks cash disbursements and receipts. • Accounts Receivable – money due from customers. • Inventory – Products to sell • Accounts Payable – Paying bills • Loans Payable – what you owe • Sales – incoming revenue from sales • Purchases – raw materials or goods purchased • Payroll Expenses – Tax and government required • Owners’ Equity – amount owner puts into the business • Retained Earnings – company profits reinvested in the business

Single Entry Bookkeeping

Single-entry bookeeping is used by businesses with minimal transactions. These businesses record simple cash sales and business expenses and do not have accounts receivable, accounts payable or capital transactions. Single entry bookeeping data are not used to reconcile revenues and expenses. The cash sale and the cash disbursements should reconcile with the bank account statement. It only consists of a cash sales journal, cash disbursements journal, and a bank statement.

Double Entry Bookkeeping

Businesses that have more complex transactions rely on double entry bookkeeping. This method works when companies use accounts receivable to collect income, buys merchandise or inventory on credit. Debits and credits are posted as income or expense with a second entry to trace the transaction to a corresponding account. This creates a paper trail in case of an audit for tax purposes.

Accounting

The practice and process of analyzing, interpreting, and reporting financial transactions dates to 1494 and to Luca Pacioli. During the industrial revolution, the need for advanced reporting systems resulted from the development of corporations. Corporations consist of investors, shareholders, and bondholders who invested money for corporate financing. In 1887, accountants created the American Association of Public Accountants, making their job a profession with standardized tests. Approximately ten years later, in 1896, the first CPA was licensed. A four-year degree is a requirement to help accountants gain specialized knowledge and theory. This knowledge is used to help companies establish procedures for recording financial data and to analyze the complexities of corporate finances. These records are used to make crucial business decisions, gauge financial situations, and communicate those records. The records are also used to prepare financial statements. Accountants also analyze bookkeeping data, prepares company budgets, and loan proposals. These types of records help in strategizing for improvement and to be aware of current financial statuses.

CPA

A certified public accountant (CPA) is someone who has passed an exam and received a license to practice in a corporation and to conduct financial audits. These professionals must continue their education to maintain licensure. CPA’s also serve as business consultants. Conflicts of interest arise when a CPA is consultant and auditor for the same firm. Professional standards and Federal and State laws prevent this from occurring. The types include: • Financial accounts – summation of financial information in reports • Public accounts – examines financial statements of companies • Forensic records – investigates financial information • Management reports – gathers financial data for internal operating reports • Tax compliance – compliance with tax regulations, planning, and filing • Internal auditing – examines financial data for fraud, mismanagement, or waste The processing of overseeing financial accounts include filing tax returns. This requires financial knowledge gained in an academic environment and a knowledge of different ethical issues. An organization could be negatively affected by unethical reporting and practices. A company’s financial information helps management make good business decisions, so the information should be trustworthy and accurate. These two processes are interrelated. Accountants depend on the bookkeepers to keep accurate records, so they can analyze, evaluate, and make predictions for their clients. Bookkeepers rely on accountants to establish systems that delineate exactly what information should be recorded and the structure of those records. Large corporations may have both an accountant and a bookkeeper, while small companies may have a bookkeeper with software for financial record keeping.

Remember that when dealing with finances, accountants tend to see the big picture, while bookkeepers are mindful of the small details. Financial software may blur the lines since some bookeeping software can generate financial statements that use to be part of the accounting process. Further, bookkeeping is becoming obsolete because their tasks, such as data entry, balancing bank ledgers, or reconciling bank accounts, can be performed by software. For now, both play major roles in the financial health, reputation, and success or failure of a business.

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