When it comes to accounting and bookkeeping, these two activities are often equated, but not without reason. This is particularly the case with smaller companies and entrepreneurs, for whom the priority is primarily fulfilling bookkeeping and tax obligations, and who use these terms interchangeably and synonymously. However, although mutually dependent, these economic disciplines are different, and accounting represents a whole and bookkeeping is an integral part of it.
What is bookkeeping?
Bookkeeping is an integral part of accounting, its accounting basis. There is no generally accepted definition of bookkeeping, as it, like accounting, can be defined from multiple aspects. One definition of bookkeeping is that it is a method of collecting, classifying, registering, preserving, reclassifying and reporting on the economic changes in the assets of a business-accounting entity. There are different forms of bookkeeping (simple and double-entry, for example), and different bookkeeping records (ledger, journal, analytical records).
The job of a bookkeeper is to document all business transactions, or changes, in a certain way. This way, all financial reports are used for planning and analyzing further business, because it is precisely on that documentation of business changes (invoices, contracts, bank statements) that all accounting records are based. In short, it can be said that bookkeepers maintain various types of records (calculations of employee earnings, taxes, sick leaves, travel expenses, calculation of liabilities to suppliers and receivables from customers etc.).
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What is accounting? | Types of accounting
The accounting process is primarily directed at financial accounting, whose final product is financial statements. However, viewed from the perspective of the user and from the perspective of business, the following types of accounting are distinguished:
• Financial accounting
• Management accounting
• Cost accounting
Financial accounting can be described as “an accounting system that provides quantitative information that is necessary when preparing financial statements for external users.” On the other hand, management accounting represents “an accounting system that provides quantitative information for managers, which they need in the process of planning and control.” Cost accounting encompasses part of management accounting and part of financial accounting, and in that context cost accounting is described as an accounting system that provides quantitative information to managers for planning and control, and determines the costs of products.
The basic task of accounting
The basic task of accounting, as a support function necessary for managing a company, is the collection and processing of financial data and the presentation of this information to interested users. To inform users means to present them with all relevant and reliable accounting information in terms of form and content. This information is contained in a series of financial reports, the foundation of which are:
1. Balance sheet (report on the financial position)
2. Income statement (profit and loss report)
3. Statement of changes in equity and
4. Statement of cash flows
In addition, in the context of financial statements, notes to the financial statements are usually considered, whose basic task is to provide a more detailed explanation of the content of the financial statement. Therefore, to make successful business decisions, it is necessary to collect financial information, which is what accounting is responsible for, and which, on the other hand, is based on bookkeeping reports and records. That is why these two concepts are so closely related, but should not be equated nonetheless.
