What's the difference between accounting and bookkeeping?
Accounting and bookkeeping are both important aspects of managing a business’s finances. Whilst they do seem quite similar at first glance, there are a few main differences.
What is accounting?
Accounting is interpreting and evaluating financial information rather than just gathering the information, like a bookkeeper. An accountant reports on this data to help businesses and people better understand their finances and make more informed strategic decisions. This information allows business owners and investors to see how a company is doing over a certain period of time.
Accountants basically manage money. They deal with areas such as financial reporting, budgeting, pay, purchasing, procurement, and tax. In some companies, they may also audit financial figures.
Accounting in general covers a range of jobs within an organisation, and there are several different areas of accounting you can go into, a few of these are:
- Management accounting involves forecasting and cost reporting based on a budget – this is a forward-looking function.
- Financial accounting involves creating statements for shareholders based on historical information.
- Tax accountants advise businesses and self-employed individuals on how to complete their tax forms.
What is bookkeeping?
Bookkeeping is the activity of keeping records of the financial affairs of a business, ensuring that the records of individual financial transactions are correct, up-to-date, and comprehensive.
They will report and track those financial transactions, with reports that show how well the business is doing.
Accuracy is absolutely vital in this as each transaction, whether it be a purchase or a sale, must be recorded.
All of this provides the information from which accounts are prepared, and there are usually set structures for this in bookkeeping called ‘quality control’.
For businesses to be successful, they need to be balancing the books every single month, otherwise, they may struggle to pay for things like stock, suppliers, and even their taxes.
What’s the difference between accounting and bookkeeping?
Bookkeeping is the first part of the accounting process, meaning the work of bookkeepers and accountants often overlaps.
Bookkeeping will focus on recording and organising financial data, with attention to detail absolutely paramount.
Meanwhile, accounting will interpret and present that data to create financial statements. They will also periodically analyse and review the financial information recorded by bookkeepers.
They both support the business in different stages of the financial cycle.
Roles of an accountant
Accountants are mainly responsible for the process of preparing and examining financial records, but that is just the tip of the iceberg when it comes to what they do.
They are also tasked with interpreting financial data, rather than simply just gathering it. They will then provide the data that investors and business owners need, in order to see how a company is doing over a period of time.
Depending on your level of expertise, the day-to-day tasks of an accountant may be:
- Preparing accounts and tax returns
- Providing tax planning services based on current legislation
- Managing colleagues
- Auditing financial information
- Financial forecasting and risk analysis
- Meeting and interviewing clients
- Analysing business plans
Roles of a bookkeeper
Two foundational tasks in business bookkeeping are data entry and bank reconciliation, but here are what a bookkeeper’s day-to-day tasks could be:
- Processing sales invoices, receipts, and payments,
- Data entry
- Bank reconciliation
- Tax filing
- Business process
- Business strategy
- Completing VAT returns
- Monthly reports
- End-of-year reporting
- Preparing invoices for the Inland Revenue
- Checking company bank statements
- Accounts receivable (and credit control)
- Accounts payable
- Reporting cash flow statements
- Balancing accounts
- Dealing with financial paperwork and filing
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