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Accounting 101: Differences between bookkeeping and accounting

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While both bookkeeping and accounting play important roles in a business’ financial success, there are important distinctions. Let’s compare the two.

Bookkeeping

Bookkeeping is part of the process of accounting in business. The purpose of bookkeeping is to properly record the financial dealings in a business. Bookkeepers record business transactions including purchases, receipts, sales, and payments made by a business.

There are a number of standard methods of bookkeeping including the single-entry and double-entry bookkeeping systems. While these may be viewed as the standard bookkeeping processes, any procedure for recording financial transactions is a bookkeeping process.

A bookkeeper records the day-to-day financial transactions of a business. Bookkeepers document each financial transaction, whether credit or cash, into the general ledger. Systems commonly used for this processing are Xero, MYOB & QuickBooks, etc.

Thereafter, the accountant creates financial reports using the information recorded by the bookkeeper.

Accounting

Accounting is a more extensive function when compared to bookkeeping. Accounting has numerous functions such as classification, summarization and interpretation of transactions. Therefore, we see that bookkeeping is confined to the recording aspect of accounting. It is the simplest part of accounting, but essential to the work of an accountant.

Errors in bookkeeping cause problems for accountants. Mistakes must be corrected before financial statements are prepared, causing unwanted additional accounting fees.

Bookkeeping is the first stage, while accounting is the last. That is why it is said that accounting begins where bookkeeping ends. Bookkeeping ends with the recording of the financial transactions in the books of account.

The accounting function then steps in to classify and present the information correctly according to Accounting Standards. Degree qualifications in Accounting require the study of these Accounting Standards.

The Australian Taxation Office and your bank look to the financial statements prepared by your accountant because only a qualified account can correctly apply the Accounting Standards.

The Financial Statements provide management with the information necessary to implement actions and achieve financial goals.

Therefore, we could say that the function of bookkeeping is mainly of clerical in nature, while accounting is concerned about organisational and administrative matters. However, both are essential to a business’ financial success.

 

Whilst Bookkeeping and Accounting are distinct roles, errors in bookkeeping commonly cause problems for businesses with errors that must be corrected by an accountant.

Chan & Naylor Bookkeeping provides a cost-effective accurate bookkeeping solution. All Chan & Naylor bookkeepers are supervised by Chan & Naylor Accountants to ensure accurate bookkeeping and reasonable fees.

If you need reliable bookkeeping and accounting services, contact a Chan & Naylor Tax specialist here, and we’ll be more than happy to help.

Also, have a look at our other accounting and advisory services that we do to help you achieve greater success.

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Chan & Naylor Group has national offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with any bookkeeping, accounting, and any tax enquiries that you may have. Contact us today.

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