What is the difference between bookkeeping and accounting? All businesses will use both bookkeeping and accounting to produce financial reports. Depending on your time and ability will depend if you need to hire a bookkeeper or accountant.
Bookkeeping is the process of recording the transactions of the business. It may include posting sales and purchase invoices, recording bank transactions and other items in the general ledger.
Accounting is reviewing the transactions and interpreting the reports to provide insights into the business.
A small business may prefer to complete bookkeeping themselves and hire an accountant at year-end to keep the costs down. A more significant firm may outsource both bookkeeping and accounting or employ staff for the job.
To look deeper into the difference between bookkeeping and accounting, we will break down the tasks of each one.
There are many bookkeeper duties and mainly include the day to day accounting transactions of a business. These transactions may consist of the following:
- Sales Invoices – Issuing sales invoices to customers and sending them by either post or internet.
- Aged Debtors – Chasing payments from customers.
- Purchase invoices – Receive check and record purchase invoices.
- Aged Creditors – Pay creditors, check statements and ensure supplier accounts are accurate.
- Payroll – Setting up and running a regular payroll
- VAT returns – If the business is VAT registered, produce and submit VAT returns
- Maintain the general ledger – Check that the accounts are correct and make any adjustments
You may be able to complete all these tasks yourself or hire a bookkeeper to complete them for you.
Accounting duties take over from the bookkeeper duties and include:
- Produce Reports – Reports are required, including balance sheet, profit and loss and forecasting. These reports help managers make decisions.
- Interpreting the accounts – Accountants can help by explaining the reports, there are ratios to see how the business is performing.
- Submitting reports – A Limited company is required to submit annual accounts. An Accountant will prepare them in the correct format and send to Companies House.
- Taxation and advising – Tax rules are complicated, and a good accountant can advise on taxation issues and ensure payment of the correct amount.
Most businesses will benefit from using an accountant, although small businesses may complete everything themselves.
Do I need a Bookkeeper and Accountant?
Sometimes a good bookkeeper can complete accountants tasks. An accountant can do bookkeeping tasks but prefer to stick to accountancy only. Bookkeepers usually are cheaper, but may not have as much experience and qualifications.
When deciding if a bookkeeper is needed, you will review the tasks that you can complete and time that you have available. It might be more beneficial for you to concentrate on the business and hire a bookkeeper to do the day to day tasks. Some owners prefer to do the accounts themselves, so they are on top of the figures and know the position of the business. A good bookkeeper will also liaise with the accountant.
I always advise a company to use an accountant; the reason for this is that they are trained in taxation and know the ins and outs of what the business can claim in expenses. A good accountant will advise on how to move the business forward. An accountant will also submit formatted accounts to Companies House.
Whenever you are employing an accountant or bookkeeper check that they have the relevant experience, qualifications and insurance. There are strict guidelines that both need to follow for anti-money laundering.
Large businesses will also need to employ an independent auditor — all companies on the London Stock exchange and companies that specify it in their articles of association. An audit is carried out by a qualified external party.
Summary – Difference between Bookkeeping and Accounting
In summary, bookkeeping is completing the day-to-day tasks of the financials and accounting is analysing and summarising the information. Both have a role to play in any business.