Often bookkeeping and accounting are considered to be the same profession. Although a bookkeeper and accountant seem to have very similar roles and often do similar work there are some major differences between the two. The real value of any business is achieved when both work closely together.
What is the difference between Accounting and Bookkeeping?
Bookkeeping is the day-to-day process of accumulating, categorizing, and recording financial transactions.
Bookkeeping is a foundation of your finances, providing vital information for reports, financial statements and tax returns. The main objective of bookkeeping is to keep all financial transactions record up to date in a proper and systematic manner.
Bookkeepers are responsible for data entry, balancing bank ledgers, preparing bank reconciliations, tracking income and expenses, VAT returns, maintaining the general ledger, and on some occasions completing payroll. Nowadays, often bookkeepers can also produce monthly Profit & Loss reports and some other financial statements and reports. In general, bookkeepers produce the data, and accountants review and interpret reports providing insights into the business although an experienced bookkeeper can assist with this too.
Accounting is the high-level process of recording, measuring, classifying, verifying, summarising, analysing, interpreting and communicating financial information compiled during the bookkeeping process. Accounting is producing conclusions, reports, forecasts, financial statements, tax returns, strategies and models that can be used by business managers to make key business decisions. As a result, it provides a picture of the actual profitability, trends, cash flow and other key financial indicators.
- Bookkeepers and accountants both work with financial data.
- Working with small businesses bookkeepers’ and accountants’ roles sometimes overlap, as bookkeepers can generate financial reports through bookkeeping software.
- Both are tax compliant.
- Both share a goal of improving your businesses financial health.
- Records and classifies all financial transactions
- Processes receipts, payments and other financial transactions
- Processes sales and purchase invoices
- Maintains and balances subsidiaries, general ledger and historical accounts
- Reconciles bank statements
- Track income and expenses for the tax periods
- Prepares initial financial statements
- Manages accounts receivable and accounts payable
- Prepares and files VAT returns
- Can also facilitate payroll
- Analyses, interpret and provide subjective advice based on data from the bookkeeper
- Adjusts entries
- Generates financial statements and reports
- Files income tax returns
- Submits annual accounts
- Advises on tax strategy and tax planning
- Prepares financial forecasts
- Analyses business performance
- Prepares budgets, business plans and cash flow forecasts
- Provides financial management advice
A Bookkeepers’ and Accountant’s work can overlap but in general, a bookkeepers priority is to record transactions and keep them organised organise whilst accountants provide consultation, analysis and often are more qualified to advise on tax matters.
When deciding if you need a bookkeeper you’ll need to review the benefits, as it might be more beneficial for you to concentrate on your business and hire a bookkeeper to professionally look after your day-to-day financial tasks. A bookkeeper can also liaise with the accountant for you to allow you to focus even more on your business.
In summary, bookkeeping is the completing of day-to-day financial tasks and accounting is the analysing and summarising of information produced by a bookkeeper. Both have a big role to play in the business and together bookkeepers and accountants can help you better understand your business and take it to the next level.
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