What’s the difference between accounting and bookkeeping?
The words “bookkeeping” and “accounting” often get used interchangeably. Both are important for the successful running of all businesses, allowing companies to keep on top of their finances. However, the two professions are subtly different.
In this article, we will run through the definitions of bookkeeping and accounting, what tasks bookkeepers and accountants carry out, and why these tasks are so vital for your small business.
What are the definitions of bookkeeping and accounting?
The definition of bookkeeping is “the skill or occupation of keeping records of the financial affairs of a business.” In other words, this refers to the organisation of your business finances.
Accounting is defined as “the skill or practise of maintaining and auditing accounts and preparing reports on the assets.” This means that not only will your business’ financial transactions be monitored, but the data collected will be turned into reports, be that to use when searching for investment opportunities or to report to HMRC.
What does a bookkeeper and an accountant do?
A bookkeeper’s role is to keep a detailed account of all money flowing in and going out of your business and to handle day-to-day financial tasks. This includes things like monitoring your daily cash flow, including all invoices and expenses, paying employees, creating sales invoices, and raising purchase invoices. They will ensure that your financial credit and debit are balanced.
On the other hand, an accountant will analyse the data that your bookkeeper has kept to assess a bigger picture of the company’s finances. This includes carrying out audits, generating financial statements, and forecasting your business’s finances in the future. They will be able to assess whether your business is profitable and suggest in-depth financial advice.
What is the purpose of bookkeeping and accounting?
The reports produced by bookkeepers are invaluable when it comes to managing money. They give you a clear and concise picture of how your business’ finances are, helping to guide you when making financial decisions each day. Bookkeeping will also allow you to spot trends where you may be overspending, helping you determine where your business can cut costs.
Conversely, the data produced and advice given by accountants is beneficial when budgeting long-term, thanks to the financial forecast produced. Accountants can also provide more in-depth financial management advice, and their reports are extremely useful if you are searching for investment opportunities.
Both professions require a strong attention to detail and the ability to work with accuracy while managing large amounts of data. Ultimately, they are invaluable resources when it comes to keeping track of expenses and creating plans for future financial success.
How can a bookkeeper help a small business?
A bookkeeper can be an invaluable asset to a small business, freeing up much-needed time which would otherwise have been spent dealing with complex paperwork, allowing the business owner to focus on other important work. A well-maintained set of books is also essential for forecasting your business’s cash flow and for sharing with banks when considering loan applications. By enlisting a qualified bookkeeper, any small business can move forward in its operations with greater confidence and accuracy.
If you’re considering enlisting the help of a professional, HiThrive offers award winning bookkeeping services tailored to small businesses. Read more about our bookkeeping service, or give us a call today to learn more about our services.