Accounting – 1.1 The purpose of accounting | e-Consult

Bookkeeping and accounting are often used interchangeably, but they are distinct functions within a business. Bookkeeping is the systematic recording of a business's financial transactions. It's the foundational process, focusing on the 'what' – recording every transaction as it happens. This involves tasks like entering sales, purchases, and payments into a journal and ledger. The primary purpose of bookkeeping is to provide a detailed and accurate record of financial activity. The output of bookkeeping is typically a set of financial statements, including a trial balance.

Accounting takes the information recorded by bookkeeping and analyzes, interprets, and reports it to stakeholders. It focuses on the 'why' – providing insights into the financial performance and position of the business. Accountants prepare more complex financial statements, such as the profit and loss account and the balance sheet, which are used for decision-making by management, investors, and creditors. Accounting involves tasks like preparing management reports, analysing financial performance, and ensuring compliance with accounting standards.

Here's a table summarizing the key differences:

In essence, bookkeeping is a part of accounting. Accounting encompasses a broader range of activities and provides a more strategic and analytical perspective on a business's finances.