We are often asked the difference between bookkeeping and accounting.
The work of a Bookkeeper and Accountant can overlap, as Bookkeeping is part of Accounting. We agree there are many similarities, but there is often a misconception that bookkeeping and accounting are the same thing.
While both deal with the finances of a business, bookkeeping is primarily concerned with accurately recording financial data, while accounting involves the interpretation and reporting on that data.
Of course, both the Bookkeeper and Accountant work to assist you and your business with your finances. Whilst both can play an integral part of your business, and we like to think work effectively together, there are some important distinctions between the roles.
This article is to provide an overview to help you consider the support you desire for you and your business.
In terms of Bookkeeping:
The dictionary defines Bookkeeping as “the activity or occupation of keeping records of the financial affairs of a business”.
- This is the first step of the accounting process, the day to day records of ‘keeping the books’.
- The Bookkeeper looks to complete an accurate record of the financial transactions of the business.
- They can work with manual records, but more than often use Excel or accounting software that they are familiar with.
- A good bookkeeper does not just crunch the numbers, but also also assist with the establishment of good financial systems.
- The focus is primarily on the day to day recording of the financial transactions and less on the analysis.
- The Bookkeeper generally has a deep knowledge of the software they use and can advise on how to best utlise its use in your business.
The type of areas that the Bookkeeper will cover includes, but is not limited to:
- Recording financial transactions and preparing initial financial statements, usually to trial balance.
- Posting debits and credits from the bank statement.
- Producing sales invoices on behalf of the business and processing invoices, receipts, payments, etc
- Maintaining and balancing the asset / liability control accounts and general ledgers.
- Processing and maintaining your payroll system, whilst keeping up to date with the latest legislation.
- Reconciling your bank accounts, credit cards, petty cash etc and maintaining the reconciliation records.
- Managing the amounts owed to you by debtors, and also the amounts you owe to creditors.
- Calculating an estimation of your tax liability.
- Preparing and submitting your VAT returns.
- Support the administration to establish financial systems or records.
As for the Accountant:
The dictionary defines accounting as “the skill or practice of maintaining and auditing accounts and preparing reports on the assets, liabilities, etc, of a business”.
- They verify the quality and accuracy of the work undertaken by the Bookkeeper.
- Prepare any adjusting entries required to meet the accounting principles and tax rules or allowances not covered in the day to day record keeping.
- A good Accountant will build on the information provided by the Bookkeeper to prepare the company financial statements
- They focus on the bigger picture, analyse costs, and consider the impact on the business of outcomes from the whole accounting process
- The Accountant will make further financial analysis to the records and provide expert guidance on how to make the numbers work in the interests of the business and to match their goals.
- Priovide specifc information to assist the business owner with the understanding of any impact from their financial decision making considerations.
- They anaylse, interpret and provide reports based on the financial information, against Key Performance Indicators, either by way of regular management accounts or on a one off basis for a specific requirement.
- They complete the tax computation and advise on how the business can mitigate their tax liability.
The type of areas that the Account will cover includes, but is not limited to:
- Completion of the financial accounts and tax returns (Business and Personal)
- Produce financial budgets and forecasts to support your business planning.
- Taxation advice and planning
- Business StartUp guidance and Business Plan advice
- The auditing of records
- Management accounts
- Financial management advice
- Can act as your Financial Director
- Undertake financial due dilligence of a third party on your behalf
In very simple terms, a bookkeeper will assist you with the ongoing financial record keeping required to keep your business managed and running smoothly. Your accountant is the representative to analyse the data produced by your bookkeeper, produce the required reports and best suited to give you the personall business development and financial / tax advice.
When a good relationship exists, which is positive for the business, then the Accountant supports the Bookkeeper in a seamless and professional manner.
Here at Chapman Robinson and Moore, we work closely with a number of good bookkeepers and would be happy to recommend a bookkeeper to match your requirements. Of course, we know a good Accountant or two!