What's the difference between Accounting and Bookkeeping?
When it comes to handling business finances and taxes, two terms, Accounting and Bookkeeping, are often thrown around together, but what are they and how are they different?
Accounting is the general term which refers to the process of measuring, calculating, and presenting financial (and sometimes non-financial) information pertaining to economic entities like businesses and corporations. In reality this can mean drafting up accounts to be presented for tax purposes, or so they can project earnings to a board of directors. The calculations involved with these are not easy, and usually change depending on a variety of different factors like tax rates, inflation etc. This is why accountants require a minimum of 5 years training, as well as annual CPD (continuing professional development) to keep up to date with new legislation.
Bookkeeping is the first stage of the accounting process and is much more specific process, it is the recording of transactions carried out by a business. This involves compiling and organising all the incomings and outgoings and making sure all of these are up to date and correct. Anything from acquisitions to the purchases of stationary must be recorded, historically this has been on paper or in ledgers (this would be where the “Book” in bookkeeping comes from), but in more recent times these records have been kept electronically, as well as often in the “cloud”.
All this work recording and organising is done for a reason. Firstly, it pays to have an up to date and tidy record of all purchases in case you need to go through them yourself, to see if you’re spending more than you should for example. The other purpose is for maintaining the accounts for your business. Anyone tasked with handling the accounts for a business will need a record of everything so that they can get an accurate read on the business’ financial assets, having them be clean and organised just makes the calculating a lot easier. Companies also have a legal obligation to keep good accounting records under the Companies Act 2006.
So, really, the different between accounting and bookkeeping lies in which stage in a process they fall in. Accounting is pivotal in business as it gives owners and directors a good financial overview of their company as well as a way to calculate how much tax they might owe, or need to be refunded, and accounting can’t be done without bookkeeping, as it’s these “books” that are the foundation. Nowadays most accounting firms offer bookkeeping as well as accounting services, so it’s quite easy to leave it all to them, all a business owner needs to do is make sure to keep a record of their transactions.