What is the difference between Accounting and Book keeping?

Introduction 

Accounting is the process of preparation of books of accounts at the end of the accounting period, which helps a businessman to estimate the net assets and liabilities, net profit, and even the net worth of the business. According to section 2(13) of the companies act “books of account” include but is not limited to:

1. All sums of receipts and expenditures take place in the company during the financial year;
2. All purchases and sales of goods and services made by the company during the financial year;
3. All the assets and liabilities of the company as per the books of accounts; and
4. All the items may be prescribed under section 148 of the Companies Act, 2013.

Books of Accounts

1. The books of account must depict the money received and expended sales and purchases of goods and the assets and liabilities of the company.
2. The books of account must be kept on an accrual basis and according to the double-entry system of accounting.
3. The books of account must depict a true and fair view of the financial statement of the company.

Difference Between Accounting and Book-Keeping

Stages of Book-Keeping

1. Identifying business transactions throughout the year:
2. The first step in accounting is to determine what to record, i.e., to identify which of the financial transactions are to be recorded in the books of accounts.
3. Measurement: In accounting, only those transactions which can be measured in terms of money or which are financial are recorded in the books of accounts.
4. Recording: Once the transactions are identified and measured in financial terms, these are recorded in books of account in monetary terms and in a chronological order
5. Classifying: Once the financial transactions are recorded in books of accounts, all the financial transactions are classified by grouping the transactions of one nature at one place in a separate account.
6. Summarizing: It concerns the presentation of data required to prepare the financial statements of the company.
7. Communication: Under this process, the financial information are communicated to the users who analyze them as per the business requirements.

Financial Statements

• Cash flow Statement of the company
• Profit and Loss account
• Balance Sheet of the company
• Statement of change in equity made during the year, if applicable.

Person Responsible for Maintaining Books of Accounts

1. Managing Director,
2. Whole-Time Director, in charge of finance
3. Chief Financial Officer (CFO)
4. Any other person of a company authorized by the Board.

Place of Keeping Books of Account

Every company has to maintain all the financial statements with all the relevant documents at its registered office. The books of accounts may also be kept at any other place in India by passing a resolution by the Board of Directors.

Who has the Rights to Inspect the Books of Accounts

1. Director,
2. Inspection by the ROC/Officers of SEBI,
3. Members/ shareholders of the company,
4. Debenture trustee for the issue of debenture
5. Auditor’s right of inspection of accounts.
6. Any other person who are so entitled.

Period for the preservation of Books of Account

Every company shall preserve their books of accounts for 8 years immediately preceding the current year from the end of the current financial year. If the company has not been in existence for less than 8 years, then for the whole life of the existence of the company.

Accounting Standards

An accounting standard is a set of principles, standards, and procedures that forms the systematic bookkeeping and other accounting functions in the firm over the year. Indian Accounting Standard is the Accounting standard adopted by companies in India and issued under the supervision of the Accounting Standards Board (ASB) which is a committee under the Institute of Chartered Accountants of India (ICAI) which consists of representatives from the government department, academicians, other professional bodies, etc. National Financial Reporting Authority (NFRA) recommend these formulations of accounting standards to the Ministry of Corporate Affairs (MCA)

Frequently Asked Questions (FAQs)

1. Why can’t I do the bookkeeping myself?

Accounting and bookkeeping can prove to be tedious and confusing tasks. Therefore it is advisable to outsource rendering bookkeeping to a firm rendering professional services.

2. What records must be maintained by businesses and for how much period?

Every taxpayer to keep a set of books of account, to be kept and maintained in its registered office of the business or at any place as decided by the director

• Cash flow Statement
• Income and Expenditure account
• Balance Sheet

Every company shall preserve their books of accounts for 8 years immediately from the end of the current financial year. If the company has not been in existence for 8 years, then for the whole life till the existence of the company.

3. What are the penalties if we fail to maintain accounts/ book of accounts?

If the business fails to keep or maintain the books of accounts, such person shall be liable to pay the penalty under section 271A to the extent of INR 25,000.

4. What is the tax Structure Charged on corporates?

The rate of surcharge is 7% in case the total income lies between one crore rupees to Rs 10 crore and 12% if the total income exceeds Rs 10 crore.