BOOKKEEPING & ACCOUNTING
The Business Financial Process
The accounting process involves recording, interpreting, classifying, analysing, reporting and summarizing financial data. Bookkeeping is the process of recording financial transactions. Recording financial transactions is the first part of and the foundation of the accounting process. While bookkeepers handle the recording part of the accounting process, accountants handle all parts of the accounting process.
Bookkeeping vs Accounting
While bookkeeping and accounting are both essential business functions, there is an important distinction. Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for interpreting, classifying, analysing, reporting and summarizing financial data. The biggest difference between accounting and bookkeeping is that accounting involves interpreting and analysing data and bookkeeping does not.
Bookkeepers record financial transactions in chronological order on a daily basis, but because accounting software automates many of the processes, some bookkeepers in small organizations also classify and summarize financial data in financial reports. These bookkeepers fall in a category between standard bookkeepers and accountants.
Accountants analyse financial transactions in financial statements and business reports following accounting principles, standards and requirements. Accountants analyse and interpret financial data to report the financial condition and performance of the business to company leaders to help them make informed business decisions.
The Similarities between Bookkeeping & Accounting
Bookkeeping and accounting can appear to be the same profession to the untrained eye. Both bookkeepers and accountants work with financial data. To enter either profession, you must have basic accounting knowledge. Bookkeepers in smaller companies often handle more of the accounting process than simply recording transactions. They also classify and generate reports using the financial transactions. They may not have the education required to handle these tasks, but this is possible because most accounting software automates reports and memorizes transactions making transaction classification easier. Sometimes, an accountant records the financial transactions for a company, handling the bookkeeping portion of the accounting process.
Taking a few accounting courses and developing a basic understanding of accounting will qualify you for a job in bookkeeping. To work in accounting, you must have at least a bachelor’s degree to become an accountant or, for a higher level of expertise, you can become a certified public accountant. Accountants are qualified to handle the entire accounting process, while bookkeepers are qualified to handle recording financial transactions. To ensure accuracy, accountants often serve as advisers for bookkeepers and review their work. Bookkeepers record and classify financial transactions, laying the groundwork for accountants to analyse the financial data.
Accounting for Planning
Successful organizations create plans to achieve their objectives. These plans include cash flow projections, sales planning, purchases of fixed assets and projecting inventory levels. An accounting analysis of historical data will provide the basis for making forecasts and developing plans to meet those targets.
Using Accounting Data for Budgeting
Budgets are essential to running a successful business. Accounting uses historical data to form the basis for future budgets and cost controls. With this information, managers can prepare overhead expense budgets and sales plans, and create cash flow projections. Then they monitor the regular accounting reports to make sure costs stay within the budgets.