Accounting vs bookkeeping: what’s the difference?
Accounting and bookkeeping are vital functions for small businesses, ensuring that they are financially compliant, healthy and able to grow. However, it isn’t always clear what the differences between these activities are.
Here’s a quick guide that defines these terms, examines what accountants and bookkeepers do and the benefits these services provide to business owners.
Defining these terms
Bookkeeping involves measuring, recording, storing and retrieving financial transactions for organisations.
Accounting relates to a body of financial knowledge and how this is interpreted, summarised and communicated through statements, product reports and income information. It is sometimes referred to as ‘the language of business’.
While both activities involve the handling of financial data, bookkeeping relates to how the data is gathered and stored and can be seen as more administrative. As accounting relates to the interpretation of this information for financial forecasting and to inform business decisions, bookkeeping can be considered part of the accounting process.
So what do accountants and bookkeepers do?
Professional accountants and bookkeepers are employed by organisations in the private and public sectors to help them stay on top of their finances. Both groups of professionals are subject matter experts and can save business owners a tremendous amount of time by gathering data and understanding what it means. In the case of accountants, they can also make some strategic recommendations for improvement.
Bookkeepers handle day-to-day financial tasks, such as data entry, recording receipts and invoices, reconciling bank statements and paying suppliers and employees. Some also produce financial statements and reports, including trial balances and balance sheets, laying the groundwork for analysis.
The reports bookkeepers produce provide valuable financial information that can be used to future-proof your business. If you are keen to have more input and advice when making decisions based on your financial data, this is where an accountant can help.
Accountants bring with them a stronger knowledge of legislation and tax. They analyse the financial data from your accounts to verify accuracy, assess whether the company is profitable and provide strategic recommendations based on their analysis. Their input could be hugely valuable if you want to know whether to bring on new staff, what to do about asset management, tax and expenses and identify where savings can be made. They focus on the bigger picture, forecasting future financial performance of businesses.
An app to help with that
FreeAgent brings all of your complex financial data into one easy-to-use system. Bookkeeping tasks such as explaining transactions, recording expenses, producing invoices and running your payroll are greatly helped by the software’s easy-to-use features. FreeAgent is Making Tax Digital compatible, allowing you to file your VAT returns directly to HMRC through the software and remain compliant with the new VAT filing rules.
Accounting tasks such as verifying the business’s books, analysing operational costs and assessing profitability are made easier by the reports available in FreeAgent. If you work with an accountant, you can give them access to your FreeAgent account so you can work on the same set of business books together in real time - no need to send in spreadsheets or hand over a shoebox full of receipts!
While there are substantial differences between accounting and bookkeeping, both functions work hand in hand to maintain the financial stability of businesses and are crucial for long-term success and growth.
If you’re looking for an accountant, why not visit our directory?