Bookkeeping and accounting are two terms that are often used interchangeably, but they refer to different activities. Understanding the distinction between the two can help you make better decisions about the financial support your business needs. This guide explains what each role involves, how they differ and whether your small business needs one or both.
What Is Bookkeeping?
Bookkeeping is the process of recording all financial transactions that take place within a business. This includes recording sales invoices, supplier invoices, bank payments, expenses and payroll entries. The goal of bookkeeping is to maintain an accurate and up to date record of all money coming in and going out of the business.
Good bookkeeping is the foundation of everything else in your finances. Without accurate records, it is impossible to produce reliable accounts, understand how your business is performing or calculate how much tax you owe. Whether you use spreadsheets or cloud accounting software, maintaining clean and consistent records is essential.
What Is Accounting?
Accounting takes the records produced by bookkeeping and uses them to produce financial statements, analyse business performance and ensure tax compliance. An accountant interprets the numbers, identifies trends, prepares year end accounts, calculates tax liabilities and advises the business owner on financial decisions.
Accounting requires a higher level of technical knowledge than bookkeeping. Qualified accountants hold professional credentials such as ACCA or ACA and are trained to apply accounting standards and tax legislation to your business records.
The Key Differences Between Bookkeeping and Accounting
- Bookkeeping is transactional. It involves recording what has happened. Accounting is interpretive. It involves understanding what those records mean for your business.
- Bookkeeping is ongoing. It needs to be done regularly, ideally in real time. Accounting typically happens at key points during the year such as quarter end or year end.
- Bookkeeping requires accuracy. Accounting requires both accuracy and professional judgement.
- Accountants can do bookkeeping. Bookkeepers are not usually qualified to carry out the full range of an accountant's work, such as preparing statutory accounts, calculating tax liabilities and providing tax advice.
Do Small Businesses Need Both a Bookkeeper and an Accountant?
The answer depends on the size and complexity of your business. For many small businesses, particularly limited companies with straightforward trading activity, one person or firm can handle both functions. Many accountants, including those at Affinity Associates Isaacs & Co, offer bookkeeping as part of a broader accountancy package.
For larger businesses with high volumes of transactions, it may make sense to employ a part time bookkeeper or use a dedicated bookkeeping service to handle the day-to-day recording, with the accountant then reviewing and working with those records at key points during the year.
Can One Person Do Both Bookkeeping and Accounting?
Yes. A qualified accountant is trained to perform both functions. Many small business accountants carry out bookkeeping as part of the service they provide, either by working from the client's records or by handling the bookkeeping themselves using cloud accounting software.
At Affinity Associates Isaacs & Co, we work with cloud accounting platforms to keep our clients' records accurate and current throughout the year. This means that when the time comes to prepare year end accounts or a tax return, we are not starting from scratch. We already have a clear and accurate picture of the business in place.
How Much Does Bookkeeping Cost for a Small Business?
The cost of bookkeeping varies depending on the volume of transactions and how the service is structured. Some businesses pay a bookkeeper on an hourly basis, while others prefer a fixed monthly fee. For small businesses with modest transaction volumes, bookkeeping can often be included within a broader monthly accountancy package, making it a highly cost-effective arrangement.
As a rough guide, standalone bookkeeping services for a small business typically range from £50 to £200 per month depending on complexity. When bookkeeping is bundled with accountancy services as part of a fixed monthly package, you benefit from a joined-up approach that covers everything from data entry through to tax compliance and advisory.
Cloud Accounting and the Modern Approach
The rise of cloud accounting software such as Xero and QuickBooks has transformed the way bookkeeping and accounting work together. Many routine bookkeeping tasks are now automated, including bank feeds, invoice matching and receipt capture. This means business owners can maintain a far clearer picture of their finances in real time without having to enter every transaction manually.
At Affinity Associates Isaacs & Co, we are experienced in setting up and managing cloud accounting for our clients. We help you choose the right software for your business and ensure your records are always accurate and up to date.
Bookkeeper, accountant, or both?
Affinity Associates Isaacs & Co provides both under one roof for small businesses across Greater Manchester, from day-to-day bookkeeping to year-end accounts and tax advice. Book your free consultation today, or call us on 07788 207181.