Accounting

Many business owners assume that if they have an accounting system they do not need a bookkeeping system.  However, both of these activities perform different functions that every business needs to be successful.

What is Accounting?

Accounting systems within an organization are quite complex, and without them it is nearly impossible to keep track of the financial status.  Accounting is responsible for controlling the bookkeeping systems to ensure that all information is recorded accurately. photodune-5273760-accounting-xs Once the information has been recorded by bookkeeping, the accounting system analyzes all of the information, so that they can provide classification and summarization of the financial status of the organization.

Accounting is also responsible for ensuring that all financial information recorded by bookkeeping adheres to the proper standards and requirements so that any financial reports can be created properly.  In addition to this, the protocols devised by accounting protects the business by verifying that all information is correct.  If there are any discrepancies, these can be indicative of fraud, theft, or embezzlement, which can be devastating to any organization.

Whereas accounting is responsible for analyzing data, bookkeeping is responsible for recording data.  Bookkeeping records all information pertaining to the organization’s finances, such as amounts paid in, amounts paid out, and any other information that affects the revenues generated by the company.  Bookkeeping also prepares financial statements and tax return information based on the accounts receivable and payable.  Once this information is recorded properly, accounting receives it for analysis.

So, What is the Difference?

The main difference between accounting and bookkeeping is that accounting is needed to assimilate all of the financial data from the organization.  The accounting system needs bookkeeping to keep track, and record all of the information coming in.  Once this information is recorded, accounting verifies that all of the financial information is accurate, and follows the guidelines provided for bookkeeping.

The easiest way to understand the differences between these two activities is that one is essentially a record keeper, while the accounting system provides analysis of the information in order to determine the exact profits and losses the organization realizes each year or quarter.  If accounting is not present, there is no way of understanding exactly what all of the financial information recorded by bookkeeping actually means.  If there is no analysis, there is no way for the organization to fully understand exactly how much money they are making or losing.