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ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations

Dunmore Co's financial controller is explaining the difference between the bookkeeping function and the financial reporting function. Which statement is correct?

Bookkeeping records transactions in the ledgers and produces a trial balance, while financial reporting takes those balances, makes adjustments and prepares financial statements complying with accounting standards and law, mainly for external users. The other statements reverse the roles or wrongly treat the functions as identical.

  1. ABookkeeping produces the financial statements, and financial reporting records the daily transactions
  2. BBookkeeping records transactions in the ledgers and produces a trial balance, while financial reporting uses the ledger balances to prepare statements in line with accounting standards and legal requirementsCorrect
  3. CFinancial reporting is concerned only with internal management information, whereas bookkeeping serves only external users
  4. DBoth functions are identical, differing only in the size of business they serve

Explanation

Bookkeeping captures and classifies transactions and balances the ledgers to a trial balance. Financial reporting then makes adjustments and presents the statements in compliance with IFRS and legal requirements for external users. The first option reverses the roles, and the third confuses reporting with management accounting.

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