The terms bookkeeper and accountant are often used interchangeably, but despite the similarities of their roles, they’re actually quite different. In this article we take a look at what a bookkeeper or an accountant can do to help a business.
Good bookkeeping also involves managing outstanding payments or upcoming transactions, too. For example, a bookkeeper will monitor unpaid customer invoices and follow up with clients, or create recurring invoices from long-term suppliers.
A bookkeeper might use a spreadsheet to help them manage all this data, or bookkeeping software which is compliant with Making Tax Digital rules. Good records help business owners see what’s really happening, and make it much easier to plan ahead and manage their cash flow.
Do all bookkeepers need to do double-entry bookkeeping?
Not necessarily, though it is a requirement for some business structures – such as limited companies. Double-entry bookkeeping demonstrates the fact that all transactions involve some kind of exchange. Both sides of the exchange are ‘double-entered’ – in other words, recorded twice – to show how this affects the business.
An example of double-entry bookkeeping
You sell an item of stock to a paying customer, and make two entries in your bookkeeping to show the transaction.
One entry shows your stock reducing, because that item leaves the business. In exchange, the second (double) entry shows money from the customer coming into the business.
This level of detail can be extremely useful, because it shows how money and resources come in and go out of a business.
How is an accountant different to a bookkeeper?
Whilst bookkeepers are responsible for compiling accurate records, accountants use this data to report on what’s happening in a business, and help it become more efficient.
For instance, financial reporting can help a business look beyond impressive sales figures and identify spending issues which are damaging profits.
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It’s essential for spotting trends and understanding what action is needed. In that respect, accountants play a more active role in advising businesses on their next financial move.
Accountants also use this information to look at how it affects the tax efficiency of a business. Part of their role is about seeing where you can (legally!) minimise your tax bill using any tax relief or grant schemes that are available.
Record the day-to-day financial transactions, such as bank payments and invoices
Compile this data into something meaningful to identify possible improvements, and to report on it for tax
Follow-up late payments, or send reminders to help the business get paid on time
Advise the business what steps they can take to improve cash flow
Capture information which shows what’s happening in the business, or will soon happen
Use this information to help the business make decisions or changes
Whilst accounting starts with good bookkeeping, it’s more about the interpretation of financial data, and then presenting this in a way which is easier to understand.
Accountants also have a terrific behind-the-scenes viewpoint of other businesses, and this knowledge can be a valuable resource for seeing what works for someone else, or what might need more attention. This isn’t just money in, money out, but the stability of your business and its prospects going forward, and even what decisions to make and when.
It can also be pretty reassuring that accountants spend so much time dealing with HMRC. For most of us this isn’t a day-to-day experience, so it can seem rather daunting. A good accountant will have the knowledge and experience to help you become more tax efficient, without worrying.