Although the terms bookkeeping and accounting are often used interchangeably in everyday communication, they refer to two distinct yet closely related functions within a company’s financial system. Bookkeeping involves the systematic and chronological recording of business transactions that have already occurred, based on the principles of double-entry bookkeeping – a method that requires at least two entries for every business event to ensure the balance between assets and their sources. This system, in use since the 15th century, has become the standardized foundation for financial tracking.
For a business transaction to be recorded in the company’s books, it must meet four fundamental criteria: the transaction must have occurred, it must be measurable in monetary terms, it must affect the existing state of core accounting categories (assets, liabilities, equity, income, expenses, and financial result), and it must be supported by a credible accounting document. Bookkeeping is therefore primarily focused on the past, with an emphasis on accuracy, clarity, and timely record-keeping.
Accounting, as a broader concept, includes not only bookkeeping but also all activities related to planning, control, analysis, and reporting. Its main purpose is to collect, process, and present accounting information relevant to the company’s operations, which is then used to support business, managerial, and strategic decision-making. Accounting planning includes forecasting future business events and quantifying them through pre-budgets and projected financial statements. Control ensures the accuracy and reliability of financial data through the verification of documentation and entries, while analysis enables the assessment of actual results against planned outcomes, identifies differences, and proposes corrective actions to improve future performance. Reporting is the process of timely and structured communication of relevant financial information, providing a clear picture of the company’s financial position.
The final output of accounting includes financial statements such as the balance sheet, income statement, and cash flow statement, which serve as key tools for management and decision-making. These reports are prepared in accordance with legal regulations or the internal requirements of the company’s management.
Bookkeeping can thus be seen as the foundational operational function within the accounting system. However, only when combined with other elements – planning, control, analysis, and reporting – can it provide a comprehensive understanding of a company’s financial position and performance. Differentiating between these two functions is essential for the effective organization of financial processes and the long-term sustainability of a business.
Izvor:
Source Perkušić, D. (2020). Fundamentals of Accounting. University of Split. Retrieved https://www.oss.unist.hr/Portals/0/adam/Contents/TnPnQrlyXEeYJna9tPx2wQ/Text/Osnove%20racunovodstva%20-%20Dijana%20Perkusic.pdf