Accounting and bookkeeping are closely related activities, but they serve distinct purposes in managing a business’s finances:
Bookkeeping:
Focuses on recording daily financial transactions, such as sales, expenses, and payments.
Involves organizing and maintaining financial records in an accurate and systematic manner.
Acts as the foundational step upon which accounting is built.
Typically includes the use of software, spreadsheets, or manual ledgers.
Accounting:
Builds upon the records maintained through bookkeeping.
Focuses on analyzing financial data, preparing reports, and devising financial strategies.
Helps in making informed financial decisions based on the company’s performance.
Includes creating financial statements, such as income statements, balance sheets, and profit-and-loss analyses.
In short, bookkeeping is the practical task of recording data, while accounting provides a broader analysis and strategic insights to manage finances effectively.