The Differences Between Accounting And Bookkeeping?
For those unfamiliar with the financial sector, certain terminology and its interpretation can be somewhat mindboggling. Bookkeeping and accounting, for example, are often seen as being much of the same process. Though it is true that each role engages with the analysis of financial data, a certain level of accountancy skills, and the proficiency to deliver the monetary outcomes appropriately, they have two very different meanings.
Of course, it is important to note the main similarity; they are both professions. In this post, we hope to provide you with some clarity of the differences between accounting and bookkeeping. Moving forward, you will understand where each profession fits in the context of your own company.
Definition And Objective
Where bookkeeping is a task that generally engages with the identification, measurement and logging of all financial transactions of a business, brand or company, accounting is the proceeding step once such data is collected. Thus, accounting is the process of reviewing, evaluating, and reporting financial transactions of which have been logged via bookkeeping.
So, in simple terms, bookkeepers collect and structure financial evidence, then accountants use it to understand the financial state and opportunity of a business. The objective of the bookkeeping role is to maintain crisp, clear records of financial records so that the business owns complete transparency of their fiscal position. The objective of accounting is then to understand the situation, then control the communication of information between business and relevant financial administrations.
Authority Of Bookkeepers and Accountants
When it comes to the hierarchal and authoritative standing between the two professions, bookkeeping comes beneath accounting. This is because there are no specific skills or professional awards necessary to become a bookkeeper; however, you must be meticulous, organised and maths-headed!
Accounting, on the other hand, requires years worth of formal education and experience. The expectations of an accountant are far greater due to the analytical and complex nature of the role. Ultimately, bookkeepers cannot make decisions on courses of action based on the collected data, whereas accountants must make crucial judgements relative to the financial goals of a business.
Financial Statements Preparation And Analysis
When required, a company must produce a report that specifies its current financial achievement and position. This report is called a financial statement. Such statements usually include balances, income statements, equity and cash flow reports.
Unsurprisingly, based on the level of influence each profession has in the industry, bookkeepers do not prepare financial statements. Contrarily, accountants are implemented so that financial statements are processed as part of the accounting process.
As such, bookkeepers are not expected to present a level of analysis as part of their profession. Instead, their task is to collect the data that is applied to the analysis. Accounting then utilises the data to create analysis and interpretations to support and compile reports.
Types Of Roles In Bookkeeping And Accounting
With regards to bookkeeping, there are two specific types; single-entry and double-entry. In a nutshell, a single entry is the named process whereby single transactions, either credits or debits, are logged. This system is far too basic for any true financial evidence to be presented. This type is generally used to provide an income statement detailing business profit or loss.
Double entry is far more comprehensive and must follow the set standards developed by UK GAAP. Developed as early as 1494 by Luca Pacioli as a method of maintaining the ‘books’ by documenting both the ‘loss’ and the ‘gain’. For example, during a purchase, a company ‘gains’ a company car, but ‘loses’ the chunk of cash it cost to buy it. Such ‘completeness’ narrows the space for potential errors (or fraud) while offering a clear, concise view of company financial affairs.
There are many more types that fall under the accounting umbrella; Financial, Management, Auditing, Accounting Information Systems, Tax and Forensic. These types are held accountable to professional bodies, such as HMRC or ICAEW, and must also maintain the standards set out by UK GAAP.
Still Not Sure If You Need A Bookkeeper Or Accountant?
So, while a bookkeeper will construct detailed financial records that support the development of financial statements required of a business, it is the devoted accounting team who will evaluate, analyse and deliver such statements and reports in the appropriate way. Though both playing a part in the accounting journey as a whole, bookkeeping is more part of the pre-process; accountants oversee the bookkeepers.
If you are still unsure where either figure stands in relation to your company, then fear not. Stonehouse Accountants provides scrupulous bookkeeping assistance alongside our extensive accounting services, as such, we are able to provide you with indispensable financial direction. If this is something you require, please feel free to contact us here or give us a call on 01733 265888!