Financial Accounting vs. Bookkeeping Free Essay Example

Accounting is the art of recording financial or business transactions in a methodical manner. So as to show their relation to each transaction and the state of the business in which they occur; summarizing, analyzing, verifying, and reporting the results. Accounting is the art of keeping accounts. It is a ridged definition, but it is exactly what accounting is, it is more than just memorizing terms and procedures; it’s a whole new way of thinking about finances, “The person who knows HOW will always have a job.

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The person who knows WHY will always be his boss.” A bookkeeper knows “how,” but an accountant or sophisticated user of financial statements knows “why.”

Now, as we delve deeper into the differences between accounting and bookkeeping we must keep in mind that to be a successful accountant you must be a successful bookkeeper. Bookkeeping is the process of recording and summarizing the economic transactions of an entity. Entities use bookkeeping because it provides organized and accurate information about their financial transactions.

Bookkeeping is closely linked to accounting but it deals mainly with recording information. While accountants do these activities, they also perform other duties such as interpreting the financial statements and installing information systems.

The day-to-day record keeping involved in this process is the bookkeeping. Accounting allows for the design of accurate financial reports that are valuable to managers, regulators, and all stakeholders in the business. There are three words that separate bookkeeping from accounting: judgment, analysis and evaluation. By doing these three things it enables decision makers to understand the financial information and use the results in planning for the future.

A bookkeeper makes the lines, the accountant reads between them. People often refer to accounting as the “language of business” because they use accounting data in communicating about an entity’s activities.

Information supplied by accountants, aid managers and executives in understanding the results of business transactions and evaluating the financial status of their businesses. With this invaluable knowledge, managers can make informed decisions about such matters as production, marketing, and financing. But if you look at bookkeepers, in effect, they would never have to do any analysis beyond that of simply plugging in the numbers. They follow a standard method, which is repeated over and over again like an equation or scientific process where you go step by step. In the end accounting is closely related to the record-keeping process called bookkeeping.

The difference is the ?how’ and ?why’: the judgment, analysis and evaluation. Accounting is closely related to bookkeeping, but is a step above it, it is the going beyond the call of duty, and it is the reading between the lines. If we look at bookkeeping as a caterpillar and accounting as the butterfly, which comes from the caterpillar in reality, it is easy to see the barrier between the two in the form of the cocoon. The cocoon represents the gap between the two, the caterpillar wraps its self in the numbers but the butterfly breaks free from the trivial and ventures further. The butterfly (accounting) emerges from the caterpillar (bookkeeping) and goes out into nature or in this metaphor the business world to flourish.