As a business owner, you are probably familiar with the terms "bookkeeping" and "accounting," but might be wondering whats the difference.
While they are closely related, there are distinct differences between bookkeeping and accounting. Understanding these differences can help you with the financial management of your business in the UK.
So lets clear up what we mean by accounting bookkeeping and how these services are used by business owners.
Bookkeeping is the process of recording and organising financial transactions for a business.
This includes keeping track of income, expenses, assets, liabilities, and equity. The primary goal of bookkeeping is to maintain accurate and up-to-date records of all financial transactions, which are then used to create financial statements.
Bookkeeping tasks include:
Accuracy and attention to detail are essential in bookkeeping, as even small errors can have significant consequences. Accounting bookkeeping is typically performed by a bookkeeper. Businesses can often either hire an in-house employee to manage their financial record keeping, or an hire an external bookkeeper to manage their accounts and transactions externally.
Accounting, on the other hand, is a broader field that includes bookkeeping skills, but also adds additional accounting skills.
For example, accounting involves interpreting and analysing financial data to provide strategic guidance to businesses. While bookkeeping focuses on recording financial transactions, accounting involves using that data to make informed decisions about the financial health and future of the business.
If bookkeeping is more focused on inputting daily transactions or keeping track of monthly cashflow, accounting is more focused on long-term strategic planning.
Accounting tasks can include:
There are several types of accounting, including management accounting, financial accounting, and tax accounting.
Accounting is usually performed by a qualified accountant, who has completed training and is certified by a professional body such as the Institute of Certified Practicing Accountants (ICPA) or the Association of Accounting Technicians (AAT).
Whether your business needs an accountant or a bookkeeper depends on the size and complexity of your business, as well as your financial goals.
As both roles are essential for proper financial management, but serve different functions, we'll look at when you might need to choose between one or the other.
Hiring a bookkeeper is a good idea if you are a small business owner or sole trader who needs help with day-to-day financial tasks.
For example, if you are not comfortable managing your own finances or simply don't have the time, a bookkeeper can help you stay on top of your financial records and ensure that they are accurate and up-to-date.
This may include:
A bookkeeper can also help you save time and money by organising your financial information and preparing it for your accountant.
This can reduce the amount of time your accountant spends on your finances, which can save you money on accounting fees.
Hiring an accountant is a good idea if you want someone to reconcile and submit your tax returns either as a limited company or a sole trader. Accountants are also useful if you have a larger business with complex weekly or monthly accounts, or if you need help with strategic financial planning.
And, if you are considering expanding your business, an accountant can help you create financial forecasts and develop a plan for growth.
An accountant can also help you save money on taxes by ensuring that you are taking advantage of all available tax deductions and credits. This can be especially valuable for businesses that may be subject to complex tax laws or regulations.
Both bookkeeping and accounting are essential for the financial management of a business in the UK. Accurate bookkeeping is essential for accurate accounting, as financial statements and reports are only as reliable as the data they are based on.
In addition, accounting insights can help businesses make more informed financial decisions. By analysing financial data and identifying trends and areas for improvement, accountants can provide valuable guidance on everything from cash flow management and revenue, to tax planning.
So while both accountants and bookkeepers are key to the smooth running of any business, choosing the right one for your needs can be confusing. Do you need to hire in-house if you're managing a small company? Or does a larger company also need a paid full time accountant?
While there are benefits to hiring in-house, companies of all sizes will often outsource their accounting bookkeeping requirements to an external professional accountants.
Here at Henderson and Co Accountants, we help everyone from large corporations to smaller companies and freelancers by managing their account process.
In fact, with our competitive pricing and friendly personal service, we're top rated on Google and Facebook by business owners large and small.
Whether you're looking for tax returns, payroll processing, balancing your balance sheet or getting your bank accounts transaction in order, get in touch.
Book your discovery call here today!
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