Bookkeeping and Accounting – The difference

A common question and one that often causes confusion is “What is the difference between a bookkeeper and accountant?”  Its a question that’s asked and has been asked many times before.

To answer that we need to look at what bookkeeping is and what accounting is and where they merge into one.  After all if you are in business and ‘doing your books’ are you not just doing the accounts?

Bookkeeping

Bookkeeping simply put is the recording of financial transactions.  These transactions can be purchase invoices, sales invoices, receipts and payments.  Bookkeeping will often be more than just posting the transactions for example bank reconciliation’s, supplier and customer reconciliation’s, expense claims and VAT returns can all fall under the bookkeeping remit.

A bookkeeper will most likely look after the day to day processing of the business and complete what are known as day books.  Even though computerised systems do not require books to be written up there are still day books behind the scenes and it will be the bookkeepers job to ensure the correct entries are recorded into the correct day book.

Accounting

Accounting falls into two main categories.  It can be financial and management accounting, whereby the bookkeeping transactions are collated together and various reports are generate based on the data, such as profit and loss accounts and balance sheets.  This is usually carried out on either a monthly or quarterly basis.

The other category is statutory accounts.  Within the UK all companies (Limited/LLP/Plc) are required to produce and file statutory accounts, these are done after the financial year end and are also known as compliance accounts as they are prepared to comply with the requirements of Companies House and are used to support the returns filed with HMRC.

The same can be said for sole trader and partnership accounts, whereby accounts are prepared to support the information completed and filed in tax returns.

Crossover

With non-statutory accounts (i.e. the monthly and quarterly accounts) this is often where a crossover occurs, especially when you consider that accountants are learnt to master bookkeeping early on in their development.

Sometimes bookkeepers will prepare management account information such as profit and loss accounts to go with the information they have processed.  Likewise sometimes accountants will carry out the bookkeeping work on behalf of a client, whether that be on a monthly or quarterly basis, or as a one off exercise when preparing statutory accounts.

This is where people generally get confused and see bookkeeping and accounting to be the same thing.  Whilst in some sense bookkeeping can be part of accounting, for many small businesses it should be seen as a separate exercise.  With well kept and timely prepared books, a small business can use the information to monitor how the business is performing, review expenses, check debtors and creditors and above all keep a watchful eye over cashflow.

Collaboration between bookkeepers and accountants

Bookkeepers and accountants are of key importance to any business, they may be carried out by the same person or different people.  Some accountants are quite happy to carry out the bookkeeping duties but they need to be careful that they do not concentrate too much on this area.

Where businesses can really benefit is when bookkeepers and accountants work together.  Each have their own very unique skill set and by using each others skills and complimenting each others roles a business can really benefit.  All too often bookkeeping is carried out by an accountant or accountancy staff, and whilst there is nothing wrong with this approach when done right, it often means that accountants are involved with processing data when they really should be using their skills to advise on more complex issues such as tax and compliance or interpreting the financial information to support the business owner.

Bookkeepers, accountants and the customer working together can be both cost effective and efficient if done correctly, provided each party know what there role is and what is expected of them.  With cloud based technology such as Xero everyone can share the data and use each other’s skills to their full potential.  There is an excellent article on the Xero blog highlighting this fact.

What other say on the subject?

Other views on the subject and interesting reads include:

AccountingWeb who asked “Are accountants more than bookkeepers?

Izzbox.com who asked “Accountant for everything or separate bookkeeper and accountant?