What Is The Difference Between Financial Management & Book-Keeping?

When we talk about managing finances, quite a few service offerings are available for a business. Businesses often need to choose the best finance and accounting solution to suit their unique needs. Understanding the difference between these offerings will help businesses to make informed decisions in this regard. In this blog, we will discuss accounting, book-keeping and financial management and will also point out the subtle differences amongst them.

What is Financial Management?

Financial management is all about managing the economic resources and activities of an organization efficiently, to achieve its financial objectives. Financial management aims to create/ increase wealth for a business and its investors. It focuses on generating satisfactory returns by making efficient use of financial resources available. Financial management includes key elements such as planning, control, and financial decision making.

What is bookkeeping?

Simply put, bookkeeping is the branch of accounting that involves the recording of financial transactions of an organization on a day-to-day basis. Bookkeepers record these financial transactions in the accounting books, maintain documentation, summarize and present to the management when required. Organizations normally engage professional bookkeeping firms to track financial transactions with the help of modern bookkeeping software. By engaging reliable bookkeeping services, organizations can measure their financial performance accurately and can make better lending or investment decisions.

What is accounting?

Accounting is all about processing and recording financial transactions related to an organization. It is the process of analyzing, summarizing and recording such information and reporting to the management, investors, shareholders and tax officials. We can categorize accounting into branches such as financial accounting, cost accounting, management accounting, and tax accounting.

Difference between financial management & book-keeping

Here are some of the key differences between financial management and bookkeeping –

1. Financial management is all about the resources and assets of an organization and making the best use of them. It aims to generate cash, create wealth and earn revenue for the organization.

On the other hand, bookkeeping is more about recording and reporting day-to-day financial transactions of the organization, with the help of standard rules and procedures.

2. Financial management is about planning for financial transactions in the future.

On the other hand, bookkeeping deals with reporting financial transactions that happened in the past.

3. The reports and findings of the financial management team are mainly for the use of company management.

But, the reports of bookkeeping services are mainly for the use of investors, regulators, management, analysts and creditors.

4. Financial management provides an insight into how the organization will generate wealth in the future. It also produces a comprehensive view of the business affairs of the organization.

On the contrary, bookkeeping showcases the current financial position of the organization.

Difference between bookkeeping and accounting

Here, we are pointing out certain important differences between bookkeeping and accounting –

1. Book-keeping is mainly concerned with the exercise of identifying, recording, measuring and classifying the financial transactions in a business

On the other hand, accounting is concerned with summarizing and communicating financial transactions that were classified in the ledger account, during the process of book-keeping. This is one basic point when we differentiate bookkeeping and accounting.

2. Book-keeping is somewhat technical and does not always require analytical skills.

On the contrary, accounting is somewhat complex and is analytical. Therefore, it requires certain special skills.

3. Another important point when we differentiate bookkeeping and accounting is that book-keeping does not include preparation of financial statements.

On the other hand, accounting involves the preparation of financial statements, based on records presented from bookkeeping services.

4. The management of a company cannot take financial decisions depending only on bookkeeping.

The management can take important financial decisions based on information received from the accounting team.

5. The objective of book-keeping is to keep proper records of financial transactions systematically.

Accounting aims to evaluate the financial position of an organization from time to time and communicate this information to the management.

6. Another important difference between bookkeeping and accounting is that – the phase of book-keeping comes at the very beginning and forms the base for the accounting activities of a business.

Accounting starts from where bookkeeping activities get completed.