What’s the difference between bookkeeping and accounting?

Bookkeeping vs accounting

They could be considered similar, right? Whilst they are both important when it comes to managing your business’s finances there are some key differences between the two.

In a nutshell, bookkeeping is more transactional and is about recording the day-to-day finances of a business.

Accounting on the other hand is about analysing and interpreting the numbers. It would usually be an accountant who carries out the more formal work like preparing year-end accounts and corporation tax returns. That said, an accountant will typically rely on the data provided by the bookkeeper to carry out analysis and prepare year-end documents, so the two roles often work closely together.

As mentioned by Xero it’s worth noting that ‘in some cases, the tasks carried out by bookkeepers and accountants can vary business to business’. Working with small businesses we know first-hand that a bookkeeper’s role can include some of the lighter touch accounting duties such as the ground work for management reports and accountants often deal with some of the bookkeeping requirements.  

We will cover qualification differences between an accountant and a bookkeeper later in this article.

Right let’s take a closer look at the task differences between bookkeeping and accounting:

What does a bookkeeper do?

As mentioned, the bookkeeping process is more transactional, it’s all about keeping on top of the day-to-day finances. To do this a bookkeeper’s work will usually require them to…

• Manage records such as payments and receipts – this would usually include allocating receipts and payments from a bank feed against relevant invoices.
• Record transactions – this could include things like adding new purchase invoices or completing journal entries.
• Reconcile transactions – here the bookkeeper would reconcile bank transactions based on what they relate to. For example, they may reconcile salary payments to the wages ledger or allocate payments to purchase invoices.
• Maintain general ledgers – ultimately the bookkeeper’s overall role is to manage all the general ledgers for the business to ensure these are kept up-to-date and accurate.
• Send invoices – a bookkeeper may be responsible for sending invoices or customer statements. With modern bookkeeping software like Xero recurring invoices can be set up to auto-generate and save the manual data entry.
• Run payroll – experienced bookkeepers are often comfortable running payroll for the business too and making payments to staff.

The role of a bookkeeper is a vital one that ensures the smooth running of business finances – without having orderly, well-managed data it makes the accountant’s role of providing valuable financial insights almost impossible.

In the words of our founder, Luke, “If the business’s financial transactions are not accurately recorded in a timely manner then any analysis or reports are useless to the business owner because they simply don’t reflect where the business is at.”

Now let’s take a look at typical accounting tasks…

What does an accountant do?

Accounting is more about providing insights, so as mentioned, using the financial data provided by the bookkeeper and sharing valuable interpretations to help the business owner take decisions.

Typically an accountant will carry out the following tasks:

• Carry out financial analysis/spot business trends – this may include calculating break even, gross margin and monitoring overhead spend.
• Advise business owners on financial matters – to help the business owner/Director to make timely decisions.
• Prepare financial statements – these would include year-end statutory accounts for filing at Companies House.
• Create corporation tax returns.
• Provide tax advice – to help the business owner be tax efficient and reduce their corporation tax bill.
• Prepare annual budgets and cash flow forecasts.
• Prepare and analyse monthly management reports – including a profit and loss account, balance sheet, aged receivables and payables. 
• Carry out an audit where the business is large enough to require one.

Our founder, Luke, who has over a decade of chartered accounting experience says, “The role of the accountant is key when it comes to providing valuable financial insights and commenting on the financial health of a business. An accountant can help transform the trajectory of a business by offering quality advice on a range of financial topics from tax savings to sound cash flow management.”

What are the qualification differences between bookkeeping and accounting?

The main difference is that bookkeeping doesn’t require a formal qualification whereas most accountants will practice with a formal qualification and will have undergone more rigorous training.  Certainly, those recognised as Chartered or Certified accountants will be a member of a regulatory body and have undergone expert training through exams and continuing professional development. Chartered Accountants are also required to undertake a set number of qualifying hours.

Bookkeeping

A bookkeeper isn’t required to have formal qualifications – often the role is overseen by someone more senior, such as a qualified accountant. However, there are relevant qualifications bookkeepers can undertake for example, certifications from organisations such as the Association of Accounting Technicians (AAT) or the International Association of Bookkeepers (IAB). Some employers may hold a preference for bookkeepers who have undertaken such certifications as opposed to those just qualified by experience.

Accounting

Accountants on the other hand will typically hold a university bachelor’s degree in accounting/finance or a qualification from the Association of Accounting Technicians (AAT). ‘Chartered Accountant’ status can be gained from training with a recognised, professional accounting body such as the Association of Chartered Certified Accountants (ACCA), the Chartered Institute of Management Accountants (CIMA) or the Institute of Chartered Accountants in England and Wales (ICAEW).

So whilst those holding either role will have a natural interest in numbers, problem-solving and analysing data there are certainly differences when it comes to the training involved.

Four signs you need the help of an expert bookkeeper:

1. You don’t have a handle on the receipts/invoices or perhaps you’re using outdated manual processes which are labour intensive instead of modern tools that can automate data entry.
2. You’re unsure how and when money is coming in or going out of the business leaving you worried about cash flow.
3. The bookkeeping isn’t being completed regularly, leaving you unsure of how your business is performing.
4. Your business is growing and whilst you used to be completely on top of the bookkeeping and transactions you’re now increasingly unable to dedicate enough time to them.

Three signs you need the help of an expert accountant:

1. You don’t know how your business is doing month to month, what your upcoming tax liabilities are or when they’re due.
2. You are looking for advice/support on how to grow your business, save tax, and improve cash flow.
3. You are looking for someone to help keep you compliant and file all the relevant documents with HMRC and Companies House.

At Raw we’re able to support your small business with both your bookkeeping and accounting needs, we like to make things as automated as possible by using accounting software to ensure your books are always up-to-date and reflective.

When you choose Raw for your bookkeeping and accounting you get your own bookkeeper and accountant who act as an extension of your business – all at a fraction of the cost of what you’d pay to hire those roles direct. So, if you’re looking for your own dedicated bookkeeper and accountant to share finance insights and support your future business needs then get in touch with Raw today.

FAQ’s

Is a bookkeeper like an accountant?

Both deal with a business’s finances but as mentioned above their are multiple differences. Bookkeepers tend to deal with more of the day to day transactions whereas an accountant interprets and analyses the financial information the bookkeeper has prepared. There are also differences between the qualifications of a bookkeepers vs an accountant.

What comes first the bookkeeper or accountant?

Bookkeeping usually comes first and is then followed by the accountants process.

Want to learn more about bookkeeping?

Then check out these other articles below:

1. What is the difference between single entry and double entry bookkeeping?
2. The 6 must known advantages of double entry bookkeeping
3. How to do small business bookkeeping: the bitesize basics