Accounting & Book Keeping

Overview

Bookkeeping refers to the process of recording and organizing daily financial transactions of a business. It involves tasks such as:

• Recording Sales and Purchases: Tracking incoming and outgoing transactions.
• Managing Receivables and Payables: Ensuring that all invoices are issued and payments are collected.
• Maintaining Financial Records: Ensuring that every transaction is recorded accurately.

Accounting builds upon bookkeeping and involves the preparation of financial statements, analysis, and reporting. Key tasks include:

• Financial Reporting: Creating reports like income statements, balance sheets, and cash flow statements.
• Analyzing Financial Data: Interpreting the data to assess business performance.
• Tax Preparation: Ensuring compliance with tax laws by preparing tax returns.
• Financial Planning and Budgeting: Helping businesses plan for future financial goals.

How Bookkeeping and Accounting Work Together

• Bookkeeping provides the foundational data needed for accounting. The accurate recording of daily transactions by bookkeepers ensures that accountants have the correct information to prepare financial statements and analyze the company’s financial performance.
• Accounting relies on the accuracy of bookkeeping records to make decisions about the company’s financial direction, taxes, and strategic goals.
• Both functions are interdependent—without bookkeeping, accountants would lack the raw data needed for their reports, and without accounting, the financial records from bookkeeping would be underutilized in decision-making.

Key Differences:

Here’s a tabular comparison of Bookkeeping and Accounting:

In both Accounting and Bookkeeping, several key documents are essential for ensuring accurate record-keeping, reporting, and compliance. These documents are used to track financial transactions, generate financial reports, and maintain transparency in the business’s financial operations.

Documents for Bookkeeping

Invoices

o   Sales Invoices: Issued when the company sells goods or services to customers. They contain details such as the date of sale, amount due, and payment terms.

o   Purchase Invoices: Received from vendors for goods or services purchased by the company, which is recorded as accounts payable.

Receipts

o   Proof of payments made for purchases. Receipts are crucial for tracking expenses and confirming that payments have been made.

Bank Statements

o   Monthly statements from the bank showing the business’s financial transactions, including deposits, withdrawals, and fees, which need to be reconciled with the company’s books.

Cash Receipts

o   Documentation of cash payments received from customers. This is especially important for businesses handling cash transactions.

Sales and Purchase Journals

o   Books that track all sales and purchase transactions, including details about customers and suppliers, amounts, and dates.

General Ledger

o   A comprehensive record that tracks all financial transactions by account. It consolidates entries from different journals, such as sales, purchases, and cash receipts, into individual accounts.

Accounts Payable and Accounts Receivable Records

o   Accounts Payable: Records of what the company owes to vendors for goods or services received.

o   Accounts Receivable: Records of money owed to the business by customers.

Petty Cash Records

o   A record of small, day-to-day expenditures made by the business, usually for minor expenses like office supplies, small repairs, or transportation costs.

Payroll Records

o   Documentation of employee wages, deductions, and benefits, including pay stubs, time sheets, and payroll tax forms.

Credit Memos and Debit Memos

o   Credit Memos: Issued to customers for returns or refunds.

o   Debit Memos: Issued to suppliers for returned goods or services 

        Fixed Asset Register

o   A document tracking the company’s fixed assets, including property, plant, and equipment, their cost, depreciation, and current value.

       Financial Information

o   Previous Financial Statements (Balance Sheet, Income Statement, Cash Flow Statement).

o   Trial Balance from the last accounting period.

o   General Ledger and Journal Entries for ongoing transactions.

        Miscellaneous Documents

o   Details of loans or advances (including repayment schedules).

o   Historical Accounts and records of the bookkeeping process.