For a new business to survive in a competitive landscape, the ability to minimise costs is of utmost importance. One of the simplest ways to do that is to perform the bookkeeping and accounting yourself. But before you can do so, you will first need to understand the fundamental differences between bookkeeping and accounting.
It may not be easy to fully appreciate the differences between accounting and bookkeeping through the definitions in typical accounting textbooks. However, the separation is apparent when we look at them from a real-life perspective. Therefore, this article will also be helpful to students who are currently pursuing a diploma or degree in accountancy.
The concept of GL, AR and AP
To understand the difference between bookkeeping and accounting, we will first need to understand the basic concepts of GL, AR and AP.
You might be running a young, newly incorporated business. However, we will need to look into how large companies organise their accounting departments to appreciate GL, AR and AP.
Large multi-national corporations (MNCs) segregate their accounting departments into three main parts – GL, AR and AP. GL stands for General Ledger. On the other hand, AR and AP refer to Accounts Receivable and Accounts Payable.
What are AR and AP?
Accounting staff who are part of the AP team in large accounting departments deal with all supplier-related matters. They check the invoices received, enter them into the accounting system and prepare the payments. The processes may vary among different industries and companies, but the general tasks are similar.
On the other hand, the AR team is responsible for all customer-related matters. These activities include issuing invoices, credit control and allocating payments received to the invoices issued previously.
In general, AR and AP functions are less complex as compared to GL. MNCs generally expect less amount of experience for candidates to fill these roles. From a real-life perspective, bookkeeping involves all the tasks involved in AR and AP functions.
How about GL?
GL team consists of more senior accounting staff. Depending on how the MNCs structure the accounting departments, GL staff may or may not oversee the AR and AP teams. GL team handles all other matters in the accounting departments that do not fall within the duties of AR and AP functions. Their duties vary more significantly than AR and AP teams. However, in general, they deal with non-current assets, prepayments, accruals and other accounting adjustments.
We do not call the GL team bookkeepers. They have specialised accounting knowledge acquired either through paper qualifications or years of practical experience. The tasks that they do, we classify them as accounting.
Conclusion
I hope I have clarified the difference between bookkeeping and accounting from a real-life perspective. Running a business is about generating profit. One obvious way to increase profit is to keep the expenses low by performing both bookkeeping and accounting yourself. You can easily save hundreds and even thousands of dollars per month! Why pay when you don’t have to?
– Yanto Wong –
