October 9th, 2020
Bookkeeping vs Accounting: What’s the difference?
Bookkeeping and accounting are not simply interchangeable words for the same function. They are distinct, although usually closely linked. Read on to find out about what each means, how they are different and how they work together.
What is bookkeeping?
The main responsibilities of a bookkeeper are to record all of the financial transactions of a business – keeping the ‘book’ up to date with all the incomings and outgoings, any money that is owed to the company and so on. These days it is rarely done using a physical book and the vast majority of businesses use online software, and so bookkeeping becomes the process of updating a software system with the latest sales, bills and more.
A bookkeeper will also ensure that the flow of money in and out of the business is consistent. They will not just record bills but they will usually pay them too, and as well as keeping track of invoices that have been sent out but they will chase up payments. They will also ensure that any receipts, expense claims and other financial documents are properly filed and looked after, so that an audit can be carried out seamlessly.
Bookkeeping is important as it’s the function that makes sure you can keep track of every penny coming in and out of the business.
What is accounting?
An accountant’s main responsibilities are dealing with more senior financial responsibilities within a business, namely filing accounts with the relevant authorities and analysing the company’s financial situation to provide recommendations on tax, business growth and cash flow.
They will prepare financial statements both for internal use and to be sent to Companies House and HMRC as required. They will also be able to make adjustments to your ledgers to take future planned expenses into account.
Accounting is important because it is a means of providing advice on your tax responsibilities and on the financial future of your business.
How do they work together?
Accounting depends on bookkeeping to be able to function. Bookkeepers are the ones who’ll record and classify financial transactions, and accounts will analyse and interpret this information to give subjective advice. Accountants will prepare and file statements and returns, using the ledgers recorded by a bookkeeper. Accounting firms will offer their own bookkeeping services, but dedicated bookkeepers are not qualified to offer accounting advice.
At Red Dot Accountants we can take care of all of your bookkeeping and accounting requirements, depending on the nature of your business and scale of what you need. Get in touch if you would like to know more.