What’s the difference between bookkeeping and accounting?
What’s the difference between bookkeeping and accounting?
The business of managing your company finances can be a pain. You’ll want to focus on promoting and growing your business and not the day to day financials (apart from sales!). However, it is very important to make time for your accounting and bookkeeping requirements. You may think that bookkeeping and accounting are one and the same, and although they have the same goal, and work closely together, their descriptions and roles are quite different to one another. Here, we discuss the differences between bookkeeping and accounting and how they operate and accommodate each other both for the good of the business, and the compliance with the law.
What is Accounting?
The purpose of accounting is to analyse and interpret all aspects of monetary transactions, these include every transaction, receipt, invoice expenditure, profit and loss etc. This is necessary to keep businesses running and attempt to make them as profitable and successful as possible. Furthermore, there is a legal requirement to preserve and record the financial activities of businesses so that their annual tax returns can be completed accurately and correctly in time for HMRC at the end of the financial year. If the returns are not correct and there are mistakes and irregularities with the figures and other activities, you could be about to receive a hefty fine from HMRC. If you fail to submit your business tax returns on time, a large fine could also be on its way to you. So, it is strongly advised that you do not take that risk and ensure that the accounting of your business is handled in a suitable manner. This is where getting yourself an accountant comes in handy!
Accounting and accountants often overshadow bookkeeping, but without bookkeeping accounting would be near impossible and the same is true the other way around. Bookkeeping and accounting are not the same and have different roles and purposes. It is often the case that businesses will act as their own bookkeeper and then use accountants to assess the information and analyse it to determine tax before it is submitted to HMRC. Accountants are senior to bookkeepers, but as their duties can overlap, some accountants may oversee and assist the work of bookkeepers. This seniority with the financial management of businesses means that many businesses rely heavily on the services of accountants and accounting as well as bookkeeping also. Many businesses simply do not have the time to sort through months and months of transfers, receipt and expense records, or have the expertise that is required to analyse the returns. Hence why many businesses bring in professional help where necessary and allow accountants to prepare their accounts, even if they prefer to carry out the bookkeeping themselves.
What is Bookkeeping?
Bookkeeping is the foundation of accounting without which, your business will be hindered in its ability to monitor and order its financial actions. Bookkeeping is vital to ensure that every financial exchange a business is involved in are officially and precisely retained for the duration of your business. Tax returns and corporation tax for HMRC is a very serious business and fulfilling your responsibilities must be a top priority. Businesses have many pressing matters to manage and the ability to offload the pressure of bookkeeping onto professionals would be a sure way of giving you the space and time you need to move your company forward without the stress and headaches of the financial management of your business. Long term implications and decisions are difficult to determine before the accounting has been completed which then allows businesses to use the financial information to make predictions and longer-term decisions about their costs and expenses.
For instance, if a business was looking to expand, it would use information provided from accounting, as this is much more complete and far reaching than bookkeeping which although it forms the basis of accounting, cannot be relied upon for business forecasts and profit predictions etc. Bookkeeping is the recording of existing data, and therefore the data is not analysed by bookkeeping, the analysis of the data is the focus and role of accounting. This shorter-term focus and responsibility of bookkeeping means that important financial events such as producing financial statements are covered by the more senior role of accounting. Bookkeeping requiring less expertise than accounting is often the reason why businesses choose to carry out the bookkeeping role themselves before turning to accountants for their professional analysis for their financial management. However, many choose to outsource both, which is why at Contractor Unlimited, we offer both bookkeeping and accounting services.
What is the difference between accounting and bookkeeping?
Accounting is about monitoring the financial activity of a business, however bookkeeping is recording the financial activity ready to be analysed by accounting. This is focused on the gathering and collecting of records to be examined before it is submitted to HMRC. Bookkeepers are on the front line when it comes to collecting financial information for businesses, it is that information that is then subject to accounting. Bookkeeping and accounting both handle the same financial data and information, yet they use it differently to the other. One collects the data and the other interprets it.
If you’d like to hear more about our bookkeeping or accounting services, then why not give us a call on 01925 938946
