What’s the difference between a frog and a toad, butter and margarine, a bookkeeper and an accountant? It’s a head scratcher for sure, but while they all seem similar – there’s distinct differences between them all.
Unfortunately, we aren’t here to talk about toads or butter, because in this blog we’ll be looking at the difference between bookkeepers and accountants. While it may not be as fun, we promise it’s great to know for your business.
What is bookkeeping?
Do you track and record all the financial transactions that go in and out of your business? If the answer is yes, you do more bookkeeping than you think. (If it’s a no, sit on the naughty step immediately).
What we’re trying to say is bookkeeping is essentially just the recording and tracking of your day-to-day financial transactions. When done correctly, you can use this data to complete tax returns, manage your cash flow, and even monitor your business’s financial health.
Good bookkeeping records will also help with tracking your expenses too, which any accountant will tell you is crucial for financial efficiency, and claiming everything back on your tax return!
How do I record my bookkeeping?
The act of bookkeeping itself dates back thousands of years, and it’s adapted over time. Picture this; you’ve met up with your bookkeeper and they’re carving your finances into a stone wall. It’s time-consuming, and difficult to correct mistakes. These days you’ll probably find it much faster and less risky to use accounting software (yes, like Pandle).
Even if the idea of using software and apps makes you feel anxious, you still have an option to use spreadsheets, or find a bookkeeper to do it for you.
What does a bookkeeper do?
A bookkeeper will take on your bookkeeping, covering anything from setting up a system to record the transactions in your business, to entering information into it.
The nature of their job means they’ll be heavily involved in what happens behind the scenes of your business, recording and categorising information consistently so that it’s easier to review, manage, and pay the right amount of tax. Typical bookkeeping duties include:
- Entering transactions
- Invoicing clients
- Chasing late payments
- Matching payments to invoices
- Running payroll
- Paying bills
What is accounting?
Accounting is what happens after bookkeeping – although there’s often quite a bit of overlap. This is where the data you record in your bookkeeping is analysed and interpreted in order to:
- Work out how much tax you owe HMRC
- Understand where the business can be more efficient
- Claim for any tax relief you’re entitled to
Tax rules are more complicated than simply paying tax on every single thing you earn. Having records of absolutely everything allows your accountant to work out what you can use to lower your tax bill, such as claiming expenses against your income as this will ensure you’re not paying more tax than you should be.
Expenses, including transaction details such as invoices or receipts, must be recorded and stored correctly both to make sure you claim the right amount and so you can show HMRC if they ever ask. Good bookkeeping software can really help you keep all your documents and records in one place – unless you love the chaos! HMRC does not.
What does an accountant do?
Accountants have a very clear goal. To ensure your business is tax compliant, efficient, and you’re fulfilling your reporting obligations. A chartered accountant has to pass exams in at least 15 areas of finance – safe to say that’s a lot of finance knowledge.
They’ll look at specific areas of your business but also at the bigger picture, ensuring you’re taking advantage of any tax relief, minimising the risk of penalties, and give advice on where you could reduce costs as well as helping you manage your cash flow.
The key differences between a bookkeeper and an accountant
The differences come with how data is handled and processed. Put simply, bookkeeping is the act of recording financial transactions. Accounting is the act of analysing and reporting financial data.
Do I need a bookkeeper or an accountant?
Let’s face it – bookkeepers and accountants are both extremely valuable for any business. But you may not always need both. It really boils down to the specific needs of your business.
For example, if you need assistance with processing invoices or chasing overdue payments – a bookkeeper is likely what you need. But if you need things like specialised tax advice, or to prepare limited company accounts – an accountant is better suited.
If you’re still unsure, you could give bookkeeping a go using software (yes, us again, like Pandle). You can chat with bookkeepers on live chat, or alternatively, ask your accountant for advice on the best way to approach your bookkeeping independently.
Need bookkeeping software? Take Pandle for a spin today.
