Most people would be hard-pressed to describe the differences between a bookkeeper and an accountant. Whilst both work with financial data, and there is a connection between the two, and also some overlap in their functions, the two terms, sometimes used interchangeably by those outside of the industry, are significant in their differences. Despite the differences, bookkeeping can actually be considered to be a part of accounting, not distinct from it. It's an indispensable subset of accounting.
The accounting process is comprised of various stages, that each deal with the financial data of a business. The stages are recording, interpreting, classifying, analysing and reporting. Bookkeeping covers only the first stage of that process - recording. Though it is only one stage, it is arguably the most important one, as it forms the foundation of the whole process and needs to be done properly for there to be any value to be gained from the subsequent, higher level processing, stages.
The primary objective of bookkeeping is to comprehensively and accurately document every single financial transaction of the business. It focuses on the minutiae of those day to day transactions, keeping track of the amounts, dates and sources of every revenue and expense generated. It requires the recording of each transaction, without any analysis of them. Other tasks that bookkeepers can be hired to carry out include: posting debits and credits; creating and sending invoices; maintaining and balancing subsidiaries; general ledgers, and historical accounts; and processing payroll.
Accountants focus on the bigger financial picture of a business. They build on the groundwork laid by bookkeepers, classifying, analysing, summarising, interpreting and reporting the financial information collected by them, for the purpose of generating statements and producing reports which they use to inform and advise interested parties such as managers and shareholders. Tasks that accountants can be hired to carry out include: preparing company financial statements; analysing costs of operations; preparing adjusting entries; completing income tax returns; and advising on the impact of financial decisions.
So, the key difference between the two can be summarised as this: bookkeeping is primarily the accurate recording of financial data, while accounting is the interpretation of, and reporting on, of financial data. And that difference should let you know which of the two it is you need to hire: a bookkeeper when you need assistance gathering and recording financial information; an accountant when you need assistance interpreting your financial information and using it to make business decisions.
Does that mean your mean your business needs to hire one of each then? No; not necessarily. For many small businesses, the work that can be done by a bookkeeper is entirely adequate for their accounting needs, so you may well only require a bookkeeper, not an accountant. And you may not even need to hire a bookkeeper if you're prepared to do the bookkeeping yourself. However, ask yourself: do you want the time and effort that bookkeeping takes up to distract you from what you do best? Hiring a bookkeeper is a normally a wise investment for any business owner to make, because employing one will free them up for hours each month to work on higher value, profit generating activities.
Either way, it's important that it gets done, because every business needs to have a reliable bookkeeping system in place, both for their own benefit and because without one it's impossible to comply with its financial legal responsibilities. Accounting, though not initially as critical as bookkeeping, is something that may become a necessity as your business expands. Ultimately, both bookkeepers and accountants contribute to the long-term financial success of a business.
If you need assistance with your bookkeeping, get in touch with Robinett Bookkeeping now to see how we can help you: 020 8979 6339 or firstname.lastname@example.org or Contact Form