We saw in our previous post, the definition and meaning of Accounting. Now, let us look into a new term called Book Keeping. Let us try to understand What is Book Keeping? and What is the difference between Accounting and Book Keeping?
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Book Keeping is recording all transactions and events as and when they occur, in an appropriate manner under either Single Entry or Double Entry System. I have seen a number of people using the terms Accounting and Book Keeping interchangeably. It has to be noted that Book Keeping is just a part of entire accounting process. All transactions like purchases, sales, buying of an asset or incurring a liability are recorded by a Book Keeper as and when they occur. They are then classified, taken to P&L and Balace Sheet and analyzed. Book Keeping is thus the process of recording the transactions as and when they occur, either as single entry or double entry. If you are not familiar with the difference between a single entry and a double entry, the following example will help.
In the image below, Illustration 1 is recording the transaction as a Single Entry and Illustration 2 is recording the transaction as a Double Entry with a Debit and a Credit.
Both Book Keeping and Accounting are important aspects of a business. Book Keeping stops with recording of transactions either as a Single Entry or Double Entry, but Accounting goes little further and involves classifying, summarizing and interpreting the results.
MAJOR DIFFERENCES BETWEEN BOOK KEEPING AND ACCOUNTING
Book Keeping forms the basis of Accounting. Accounting starts where the Book Keeping ends.
Financial Statements does not form part of Book Keeping. Financial Statements are nothing but the Profit and Loss Account and the Balance Sheet. In Accounting, Financial Statements are prepared with Book Keeping as a base.
Book Keeping does not have a sub-field, whereas Accounting has sub-fields like Management Accounting, Financial Accounting etc.
It is not possible to understand the Financial Position of an Entity with Book Keeping alone, since it just involves recording and what you get to see is the transaction dumps recorded during the year. Whereas in Accounting, it is possible to ascertain the Financial Position of an Entity, as it involves preparation of P&L which helps in ascertaining the profit made and Balance Sheet numbers to understand the Financial Position.
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