What is the difference between accounting and bookkeeping?
Managing a successful business relies on the accurate and efficient management of financial data. This is true for companies of all sizes and sectors; from small start-ups to large enterprises with decades of experience, financial management services are a vital part of staying afloat in competitive markets. In particular, companies rely heavily on bookkeeping and accounting, two financial services that help businesses track income and expenditure to make evidence-backed predictions and strategic decisions.
So how is it that still so many businesses are not clear on what the differences are between accounting and bookkeeping?
Without bookkeeping and accounting, managers won't have the information they need to make informed choices regarding business growth and development - but what's the difference between accounting and bookkeeping as services?
Accounting vs Bookkeeping
Before we delve into some of the main differences between accounting and bookkeeping, let's summarise the two services. You'll likely have heard the two terms before, but having a clearer understanding of what makes them different can help you utilise them for business gain.
- Bookkeeping refers to the processes involved in measuring and recording financial transactions. For example, if you sent an employee away on an all-expenses-paid business trip, you'd record everything from the cost of the train ticket to the food receipts collected by the employee. Recording these financial transactions can support a range of accounting services.
- Accounting refers to the processes involved in analysing and interpreting financial information, including the transactions recorded by bookkeepers, to guide important business decisions. By analysing profit and loss margins, accountants can help businesses make sensible decisions that won't jeopardize their financial stability.
While they are two distinct services, bookkeeping and accounting do hold some similarities. In fact, bookkeeping is an important part of accounting; accurate data records provide accountants with the evidence they need to make strategic decisions.
What is the difference between accounting and bookkeeping for businesses?
Bookkeeping and accounting play different roles in how a company monitors and manages its finances - but why is each service so important?
Records vs analysis
While both services are vital to the success and financial health of a company, bookkeeping and accounting solutions support businesses in different ways.
Bookkeeping services help companies organise their financial transactions (and the documents generated by them) to assist with future financial management, such as tax planning. Any documents collected during the daily operations of a company, including receipts and invoices, are filed away in a simple and easy-to-navigate format.
Accounting services, on the other hand, use the information recorded by bookkeepers to monitor the financial performance of a company. By analysing the economic growth of an enterprise and identifying areas of excessive expenditure or profit loss, accountants can make conclusions about its financial stability.
Long-term objectives
So, what are the differences between accounting and bookkeeping in terms of long-term objectives?
Recording financial transactions via bookkeeping is a vital part of tax planning, supplying managers with the information they need to make important calculations. Planning for the future to avoid costly complications and audits is what keeps businesses afloat - especially business start-ups.
Not only does this minimise business downtime, but it also makes it easier to stay compliant according to the regulations set out by HMRC. When it comes to calculating how much tax you owe or claiming VAT, lost financial transactions could cause time-consuming, costly and stressful delays. That's why finding reliable bookkeeping services is highly recommended for businesses, both small and large.
Alternatively, the analytical nature of accounting helps managers make calculated business decisions as part of a long-term strategy. Identifying patterns in profit performance allows you to predict financial eventualities and make long-term projections, shaping the development of your business and avoiding expensive mistakes.
Business decisions
What are the differences in roles for accounting and bookkeeping when it comes to business decisions?
Ultimately, businesses rely on accounting services to guide important decisions. Before making any decision with long-lasting implications, you need to know whether it's financially viable. More than this, you need to know whether it's financially lucrative. Everything from giving your employees a pay rise to launching a new product requires cashflow forecasting.
Bookkeeping processes can put the figures in front of you, but it's specialist accounting that's required to predict financial trends, evaluate profit growth and losses and identify potential areas of economic downturn. Combined, these can help you make profitable decisions that help your business grow sustainably.
The world of finance can be complicated, so let our team of highly-skilled and experienced accountants take the burden of managing your business finances out of your hands. Whether you require bookkeeping, tax advice, business start-up planning or assistance with HMRC investigations and compliance, rely on the chartered accountants at Keith Graham for a professional service.