There are many words in the English lexicon that may seem like they're one and the same, but upon closer review, are actually quite dissimilar. Case in point: accounting versus bookkeeping.
For the purposes of taxes, accounting is an umbrella term that typically refers to financial expenditures.
And, as stated in its name, it involves "counting," or more specifically analyzing, reporting, recording and classifying numerical forms of data.
Bookkeeping, meanwhile, is a subset of accounting. Sometimes referred to as record keeping, it also involves analysis and the handling of financial affairs, typically related to a business, but unlike accounting, it's not as broad of a term.
For example, bookkeeping describes the process of keeping or maintaining records. To put it another way it refers to what actions are being taken to keep numbers in chronological order on a day-to-day, weekly or monthly basis or however long the period is in which numbers are being crunched.
In fact, for a truly effective accounting system to take place, bookkeeping may be the most important component.
Think of Accounting Like a Pie
Perhaps an illustration can serve as a helpful way to decipher between the two.
Imagine there's a pumpkin pie that's cut into six triangular pieces. Each piece represents the accounting process. There's the interpretation slice, the analysis slice, reporting piece, summary slice, classifying slice and recording slice.
It's this last piece, - recording, or bookkeeping - that is the principal component of accounting.
To continue with the pie theme, each slice is important to the overall accounting pie. Without one, the accounting process isn't fully completed. And the recording piece may be the most important slice of all.
After all, without recording data, you can't interpret it, classify it or analyze it, mainly because there's nothing there to account for. Because accounting is contingent upon recording, it's important that the bookkeeping procedure be as close to perfect as possible.
If you or an employee is responsible for bookkeeping, make sure the data that's being recorded is accurate and complete. Always remember to double check your work before continuing on with the rest of the accounting process, as the finished product depends on the beginning.
For more information on bookkeeping and accounting, talk to an FBC professional.