Although the terms ‘accounting’ and ‘bookkeeping’ are often used interchangeably, there is actually a significant difference between the two as practices. So, the short answer to the title of this article is yes.
As professionals in the industry, we can sometimes be guilty of taking the jargon that rolls off our tongues every day for granted so we wanted to take this opportunity to set the record straight.
In order to best highlight the differences between the two, let’s take it back to basics and start by defining each one and look more closely at what they generally involve.
What is bookkeeping?
Bookkeeping is the chronological compilation of transactions to report on things like expenditure, cash flow, invoices, pay roll, expenses – essentially, all money-related activity going in and out of the business bank account(s).
Bookkeeping involves meticulous data entry and the management of payments (again, in and out). This can either be done manually or by taking advantage of the wonders of modern technology such as our cloud-based bookkeeping software, Pandle.
This is the first stage of the financial process and is a prerequisite to the methods of accountancy which come next.
What is accounting?
In a nutshell, accounting is the interpretation, analysis and study of the financial data which is collated through the bookkeeping process outlined above.
The documents, reports and statistics which are gleaned from this intricate and numerical process are then used for purposes such as the following:
- To provide insight into the financial health of the business
- To inform decisions around spending, cost-saving and investment
- To gather relevant information that is required for external bodies such as stakeholders and HMRC including year-end accounts, audits, self-assessment tax returns and VAT reports
- To present to potential investors or buyers who will need to know the ins and outs of the business’ financial status and overall performance
How are accounting and bookkeeping different?
While accounting and bookkeeping are both integral elements of the financial reporting process, it’s fair to say that they both play their own unique roles.
To summarise the difference between them, you could say that bookkeeping is the mechanical process which feeds in the information that is required to successfully carry out more analytical tasks which fall under the umbrella of accounting.
As a skill in itself, bookkeeping could be seen as the administrative organisation of resources which can then be used in an accounting capacity to create documents and reports which help businesses manage their finances more efficiently.
Without thorough and accurate foundations built through the bookkeeping procedures, accountancy practices run the risk of containing gaps or errors. This could then lead to poor business decisions or trouble with HMRC.
Of course, both processes can be carried out by the business owner themselves, but each area does ideally call for a specific skillset. This is why we always recommend enlisting the expertise of a trained professional.
If you’d like some more information about any of our services, get in touch with one of our qualified accountants. Alternatively, if you’re interested in finding out more about our cloud-based bookkeeping software, Pandle head to www.pandle.co.uk.