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Accounting vs Bookkeeping vs Cashbook: Which is better depends on your business.

What are accounting, bookkeeping and cashbook?

Accounting is the process of interpreting and presenting financial data to business owners and investors. Accounting involves tasks such as preparing financial statements and reports, creating budgets and tax returns, and analysing business performance¹².

Bookkeeping is the process of recording and organising financial data. Bookkeeping involves tasks such as recording transactions, managing accounts, reconciling bank statements, delivering balance sheets and income statements, producing invoices, and managing payroll¹².

Cashbook is a type of bookkeeping that only tracks cash transactions. Cashbook involves recording all cash inflows and outflows in a single ledger account. Cashbook helps to monitor cash flow and cash balance.

What are the benefits of each method?

Accounting has the following benefits:

- It helps to measure the financial performance and health of a business.
- It provides useful information for decision making and planning.
- It helps to comply with tax laws and regulations.
- It helps to attract investors and lenders by showing the profitability and viability of a business¹².

Bookkeeping has the following benefits:

- It helps to keep track of day-to-day business finances.
- It helps to ensure accuracy and completeness of financial records.
- It helps to prevent fraud and errors by detecting discrepancies and anomalies.
- It helps to prepare the data for accounting purposes¹².

Cashbook has the following benefits:

- It helps to simplify bookkeeping by focusing on cash transactions only.
- It helps to save time and resources by avoiding double-entry system.
- It helps to control cash flow and cash balance by showing the net cash movement.
- It helps to reconcile cash transactions with bank statements, if needed.

How much time does it take to undertake each function?

The time required to undertake each function depends on various factors such as the size and complexity of the business, the volume and frequency of transactions, the level of automation and integration of systems, and the skill and experience of the staff.

However, some general estimates are as follows:

Accounting usually takes more time than bookkeeping because it involves more analysis and interpretation of data. Accounting tasks may be performed monthly, quarterly, or annually depending on the needs of the business. Accounting tasks may take from a few hours to several days or weeks depending on the scope and depth of the work .

Bookkeeping usually takes less time than accounting because it involves more routine and repetitive tasks. Bookkeeping tasks may be performed daily, weekly, or monthly depending on the volume of transactions. Bookkeeping tasks may take from a few minutes to several hours depending on the number and complexity of transactions .

Cashbook usually takes the least time among the three methods because it involves only cash transactions. Cashbook tasks may be performed daily or weekly depending on the cash flow of the business. Cashbook tasks may take from a few minutes to an hour depending on the amount and nature of cash transactions.

Which method is used for what scale of business?

The choice of method depends on various factors such as the nature and structure of the business, the legal and regulatory requirements, the availability and affordability of resources, and the preferences and objectives of the owners.

However, some general guidelines are as follows:

Accounting is suitable for any scale of business, from small to large, as it provides essential information for managing and growing the business. Accounting is especially important for businesses that have multiple stakeholders, such as shareholders, creditors, customers, suppliers, employees, and regulators. Accounting is also necessary for businesses that need to file tax returns and comply with accounting standards¹².

Bookkeeping is also suitable for any scale of business, from small to large, as it provides the foundation for accounting. Bookkeeping is especially important for businesses that have a lot of transactions, such as retail, manufacturing, or service businesses. Bookkeeping is also necessary for businesses that need to maintain accurate and complete financial records¹².

Cashbook is more suitable for small-scale businesses that have simple and straightforward operations, such as sole traders, freelancers, trades people, one person operations or home-based businesses. Cashbook is especially useful for businesses that deal mostly with cash transactions, such as cafes, salons, or markets. Cashbook is also convenient for businesses that want to save time and money on bookkeeping.

What are the differences between each method?

The main differences between each method are as follows:

- Accounting is more analytical and interpretive than bookkeeping and cashbook.
- Accounting provides more information and insights than bookkeeping and cashbook.
- Accounting requires more skills and qualifications than bookkeeping and cashbook.
- Bookkeeping is more systematic and organised than cashbook.
- Bookkeeping covers more transactions and accounts than cashbook.
- Bookkeeping requires more software and tools than cashbook.
- Cashbook is more simple and easy than bookkeeping and accounting.
- Cashbook focuses only on cash transactions while bookkeeping and accounting cover all types of transactions.
- Cashbook does not follow the double-entry system while bookkeeping and accounting do.

What type of business would be suited to what method?

The type of business that would be suited to each method depends on various factors such as the nature and structure of the business, the legal and regulatory requirements, the availability and affordability of resources, and the preferences and objectives of the owners.

However, some general examples are as follows:

Accounting would be suited to businesses that:

- Have multiple stakeholders who need financial information and reports
- Need to file tax returns and comply with accounting standards
- Want to measure their financial performance and health
- Want to make data-driven decisions and plans
- Want to attract investors and lenders

Some examples of such businesses are corporations, partnerships, non-profit organisations, or franchises.

Bookkeeping would be suited to businesses that:

- Have a lot of transactions that need to be recorded and organised
- Need to maintain accurate and complete financial records
- Want to prevent fraud and errors by detecting discrepancies and anomalies
- Want to prepare the data for accounting purposes
- Want to save time and money on accounting services

Some examples of such businesses are retail stores, manufacturing plants, or service providers.

Cashbook would be suited to businesses that:

- Have simple and straightforward operations that involve mostly cash transactions
- Do not need to comply with accounting standards
- Want to simplify their bookkeeping by focusing on cash transactions only
- Want to control their cash flow and cash balance
- Want to save time and money on bookkeeping software, tools and even outsourcing the role.

Some examples of such businesses are sole traders, one person operations, trades people, freelancers, or home-based businesses.

Conclusion

In conclusion, accounting, bookkeeping and cashbook are three different methods of managing business finances. Accounting is the interpretation and presentation of financial data. Bookkeeping is the recording and organising of financial data. Cashbook is a type of bookkeeping that only tracks cash transactions. Each method has its own benefits, drawbacks, time requirements, suitability, and differences. The choice of method depends on various factors such as the nature and structure of the business, the legal and regulatory requirements, the availability and affordability of resources, and the preferences and objectives of the owners.