This is a question I often get asked when I tell people what I do. Many people assume they are the same thing and I can understand why. The two terms are often used interchangeably. It can also be confusing because there are bookkeepers that provide accountancy services and accountants that provide bookkeeping services. Many business owners don’t realise that these are two separate roles and, quite significantly, priced differently.
To make a clearer distinction, I will explain what the differences are between a bookkeeper and an accountant and how each can help your business.
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts and payments by an individual person or a company. A bookkeeper will conduct this process.
HMRC also refers to bookkeeping as ‘record keeping’.
The theory is, behind every transaction on your business bank account, there is a piece of paper. The bookkeeper will process the paperwork and allocate or code them to appropriate ledgers – sales ledger, purchase ledger, general ledger. They are responsible for the day to day financial transactions of a business, making sure that the ledgers are balanced.
A bookkeeper will update a business’ books regularly, usually once a month. At the end of the financial year the bookkeeper will have brought the books to trial balance stage, at which point this will be sent to the accountant who will then use this information to produce financial statements.
A bookkeeper can perform other tasks such as raising invoices, payroll, credit control and VAT returns. As mentioned above, some bookkeepers will provide a full accountancy service.
Why should I use a bookkeeper?
Bookkeeping should be done little and often. Depending on the volume of paperwork involved, this can be done weekly, monthly or quarterly but more commonly it is done monthly. For a business owner that is running a business and doing many other things, bookkeeping tends to be one of those things that gets left behind as soon as you get busy. If this happens you should seriously consider getting yourself a bookkeeper. If you fall behind on keeping your books up to date, it can cause numerous problems.
A bookkeeper will keep your books up to date and ensure that if anything is missing it can be picked up straight away instead of at the end of the financial year. They will provide useful reports that help you keep track of your business performance, and will bring your attention to something that needs to be dealt with straight away. Generally speaking, bookkeepers are cheaper than an accountant.
An accountant generally takes over where a bookkeeper leaves off. They will use the information provided by the bookkeeper and prepare adjusting entries to record expenses that have occurred but are not yet entered by the bookkeeper, for example if a supplier invoice hasn’t arrived on time prior to closing the books, or if wages in relation to the current month won’t be made until two weeks later, etc. Other adjustments to the accounts include the calculation and recording of depreciation. After making the adjusting entries, the accountant prepares the company’s financial statements, such as a profit & loss account, balance sheet, cashflow statement, etc.
An Accountant will also perform other tasks such as setting up a Limited Company, Tax returns, compliance, advice and business strategy. As mentioned above, some accountants will provide a bookkeeping service. In an accountancy practice an employed bookkeeper is likely to perform this task.
Accountants generally will have a professional qualification through an accounting body. Accountants will go though years of studying and training to obtain a qualification and they will be bound by code of ethics and subject to disciplinary procedures should they breach their professional membership conditions.
Why should I use an accountant?
Regardless of the size of your business, and unless you are an expert in tax or finances, you should get yourself an accountant. They will provide your business with a great deal of essential support. You can seek help with budgeting and forecasting cashflow from an accountant as well as credit control and just general financial advice. They can offer you up-to-date information on any general or legal enquiries.
Professional accountants understand the nuances of dealing with the tax authorities, the correct format to submit information to HMRC, and are generally for more able to deal with tax enquiries should they arise. If you need advice on anything from the expenses you can offset against Corporation Tax, or whether or not you have enough retained profit to declare a dividend legally, an accountant would be able to answer these queries with ease. Taxation is a large business expense and an accountant can effectively minimise these costs.
The distinction between accountant and bookkeeper keeps changing as accounting software and other software evolves. For many years, companies used the title of accounting clerks for employees doing the tasks formerly performed by bookkeepers. The accounting clerks are usually supervised by an accountant.
Remember both are professional roles in their own way. If you looking to employ or outsource you should be looking for someone with a suitable qualification or experience. Bookkeepers and accountants can be certified through professional bodies. Make sure you seek someone that can explain accounting jargon in plain English!
Rosemary Bookkeeping provide an outsourced bookkeeping service for small and medium sized businesses. If you would like more information about outsourcing your bookkeeping, contact Neeta Patel:
Tel: 01604 422314