Diff between Accounting & Book Keeping -
Bookkeeping
Bookkeeping is the process of systematically recording the financial transactions of a business, so as to show how
the transactions relate to each other. Bookkeeping is largely a mechanical process and does not involve any
analysis of the financial transactions, but rather the recording of them.
Traditionally, the records were kept in a book, hence the name bookkeeping. These days, bookkeeping is normally
performed using a bookkeeping software package, but the names of the books (daybook, cashbook, journal, and
ledger) are still used.
A bookkeeper's function is primarily one of recording transactions in the journal and posting to the ledger, and is
sometimes referred to as an accounts clerk.
There are two types of bookkeeping: single entry and double-entry. In single entry bookkeeping, the record of each
transaction is carried to either the debit or credit column of a single account. In double-entry bookkeeping, two
entries of each transaction are carried to the ledger: one to the debit side, and one to the credit side, of the
corresponding account. This is so the two entries can be used to check each other.
Accounting
Accounting is the systematic recording, reporting, and analysis of financial transactions of a business. As
bookkeeping involves making a financial record of business transactions, it is true to say that the role of
bookkeeping is encompassed within the scope of accounting, and the bookkeeping system used by a business
would form part of the accounting system.
Accounting also includes the preparation of statements concerning assets, liabilities and the operating results of a
business.
Accountancy is the occupation related to accounting, and an accountant is the person who does, or at least is
responsible for, the work. Accountants often specialize in a particular area of accounting such as taxes, auditing, or
management.
In a small company, all of the bookkeeping and accounting tasks may well be performed by a single person. In this
situation, that person would normally be referred to as an accountant.
Closing entries
Closing entries are journal entries made at the end of an accounting period to transfer temporary accounts to
permanent accounts. An "income summary" account may be used to show the balance between revenue and
expenses, or they could be directly closed against retained earnings where dividend payments will be deducted
from. This process is used to reset the balance of these temporary accounts to zero for the next accounting period. [1
opening entry
one or a series of entries usually undertaken upon forming a new enterprise, or new accounts, or a new accounting period. A new
enterprise requires opening entries with respect to the owner's interests, assets, and liabilities on the books.
users of financial statements -
The users of financial statements are people and institutions use financial statements for a large variety of business purposes
and their ability to understand and analyze financial statements helps them to success in the business world. The various users of
financial statements are classified and detailed as follows:
1. Internal Users
The internal users of financial statements are the individuals who have direct bearing with the organization.
Managers and Owners
Employees
2. External Users
Institutional investors: The external users of financial statements are basically the investors who use the financial statements to
assess the financial strength of a company. This would help them to make logical investment decisions.
Financial Institutions: The users of financial statements are also the different financial institutions like banks and other lending
institutions who decide whether to help the company with working capital or to issue debt security to them.
Government: The financial statements of different companies are also used by the government to analyze whether the tax paid by
them is accurate and is in line with their financial strength.
Vendors: The vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.
General Mass and Media The common people as well as media are also the users of financial statements.
What Does Accrual Accounting Mean? Or
Mercantile System of Accounting -
An accounting method that measures the performance and position of a company by recognizing economic events
regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues
to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or
received). This method allows the current cash inflows/outflows to be combined with future expected cash
inflows/outflows to give a more accurate picture of a company's current financial condition.
Accrual accounting is considered to be the standard accounting practice for most companies, with the exception of
very small operations. This method provides a more accurate picture of the company's current condition