Definition of Accounting
Accounting is the process,science as well as the art of recording all daily financial transactions of the Firm or any Business Entity.
American Institute of Certified Public Accountants defined as, “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the results thereof.”
Book-Keeping is mainly concerned with recording of business transactions in books of account. Accountancy goes a step further. It includes not only recording of the business transactions but also summarising the transactions, analyzing and interpreting their effect on working of the business.
Objectives of Accounting
- To maintain full and systematic records of business transactions.
- To ascertain profit or loss of the business.
- To know financial position of the business.
- To provide information for legal and tax purpose.
- To review Business policies in the light of the past record.
- To have important information for legal and tax purpose.
- To find total expenses and profit of the firm.
Book-Keeping: Book-Keeping and accountancy are the two allied subjects of the branch ‘Financial Accounting’. Book-Keeping is an activity concerned with the recording of financial data relating to business operations in a significant and orderly manner. Book-Keeping is the record making phase of accounting. Accounting is based on a careful and an efficient book-keeping system.
Bookkeeping is the work of a bookkeeper (or book-keeper), who records the day-to-day financial transactions of a business. They usually write the day-books (which contain records of sales, purchases, receipts, and payments), and document each financial transaction, whether cash or credit, into the correct daybook—that is, petty cash book, suppliers ledger, customer ledger, etc.—and the general ledger. Thereafter, an accountant can create financial reports from the information recorded by the bookkeeper.
Bookkeeping refers mainly to the record-keeping aspects of financial accounting, and involves preparing source documents for all transactions, operations, and other events of a business. The bookkeeper brings the books to the trial balance stage: an accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
Difference between Bookkeeping and Accounting
|Meaning||It is an activity of recording the financial transactions of the company in a systematic manner.||It is an orderly recording and reporting of the financial affairs of an organization for a particular period.|
|What is it ?||It is the subset of accounting.||It is regarded as the language of business.|
|Decision Making||On the basis of bookkeeping records, decisions cannot be taken.||Decisions can be taken on the basis of accounting records.|
|Tools||Journal and Ledgers||Balance Sheet, Profit & Loss Account and Cash Flow Statement|