What is the difference between Accounting and Bookkeeping?

Bookkeeping is mostly about recording and organising financial data while accountants take that data and prepare year end reports for HMRC and Companies House.

In this blog I will highlight the main differences between accounting and bookkeeping so that you will go away with a clear indication of what each one does. There is however many instances where the roles can overlap and you may find that your Bookkeeper can carry out some of the work of an Accountant and vice versa.

What does the Dictionary say:

Bookkeeping

The Online Dictionary says the definition of the word bookkeeping is "the activity or occupation of keeping records of the financial affairs of a business."

Accounting

The Online Dictionary says the definition of the word accounting is "the process or work of keeping financial accounts."

What is Bookkeeping?

I often here the phrase "just a bookkeeper" or "data entry specialist", but a good bookkeeper is so much more than that and is a vital part of any business operation.

Yes they are responsible for keeping accurate records of transactions in and out of the business but it is not as simple as copying receipts in to a spreadsheet. In order to be proficient at their job, bookkeepers must have a strong understanding and experience with specialised accounting software. This allows them to produce advance detailed reports, looking at everything from gross profit to specific expenditure. Bookkeepers are also responsible for data reconciliation and making sure the accounts balance.

What is Accounting?

An Accountant is a finance expert that takes the data prepared by the bookkeeper and produces the year end accounts ready for HMRC and Companies House. They will complete company tax returns and advise on business structure, best practise for saving tax and help with cash flow and planning for the future.

Below is a general list of duties carried out by the Bookkeeper and the Accountant, so that you can see where they overlap.

Do I need both?

The short answer is yes. However, if you are a sole trader and your bookkeeper is also qualified to process self assessment tax returns then you may not need the assistance of an accountant, but for limited company accounts you will need both as a bookkeeper can not provide year end accounts for Companies House. Having a bookkeeper is like having a personal finance assistant, they are on hand every day to support you and answer any questions you have. An accountant usually works in way where you may only speak to them once a quarter or at year end when your final accounts are due.

Why you shouldn't separate your accountant and bookkeeper

Whilst their jobs are separate, the accountant and bookkeeper's relationship should be close. Having a strong connection between accounting and bookkeeping, good communication and mutual support is essential for smooth business operation.

A good bookkeeper can save an accountant a lot of time by preparing accurate, well maintained and easily accessible records and an accountant can make the bookkeeper's life easier by helping them manage and record advanced financial data. Together a bookkeeper and an accountant can ensure the businesses finances are well managed allowing the business owner to focus on the development.