3 Key Differences between Accounting and Bookkeeping

Accounting and Bookkeeping, to many people, are one and the same thing. However, there are many differences between the two of these topics that are important to understand if you're running your own business. If you are in the early stages of your business journey then understanding what you can and can't do yourself in terms of bookkeeping and accounting can free up valuable time for you to focus on other aspects of running your business.

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⏱️ Time Stamps:
0:46 - What is bookkeeping?
2:18 - What is accounting?
4:27 - Accounting records vs financial statements
5:14 - The 3 key differences between bookkeeping & accounting
6:52 - Can and should you do your own bookkeeping?

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In short, bookkeeping is the way in which business record their income and expenditure. It's about collecting all of the different sources of data and recording them. Accounting happens after this, and is the process by which all of this data is categorised into an easily digestible format to allow you, the business owner, or external users to better understand the numbers.

With the advances of bookkeeping software such as Quickbooks and, our favourite, Xero. More and more business owners are undertaking bookkeeping responsibilities themselves. However, there is an opportunity cost that comes with this as bookkeeping often requires a methodical approach and mistakes can lead to wrong calculations in the accounting stage.

We have categorised the three main differences between bookkeeping and accounting as:

1) The objective of bookkeeping is mainly of data entry and the processing of the raw data from source material, such as your business bank account transactions whereas accounting is the adjusting of the already processed data to a standard and format that is digestible and acceptable for compliance purposes, and 3rd party users. Bookkeeping is the start of the process and accounting begins where bookkeeping ends. The accounting function cannot operate without the bookkeeping being completed as it first needs the data to be organised in a way that can then be adjusted and made presentable.

2) Bookkeeping tends to organise the numbers more for internal use by the business owners and management and is not geared towards assisting you the business owner with decision making. Accounting on the other hand is often focused more on presenting the numbers for external users for a true & fair view, such as companies house, HMRC, investors, your bank and practically any other stakeholder or interested party. And is geared towards helping you the business owner and management with decision making.

3) Accounting is generally regulated by accounting bodies such as the ACCA and ICAEW here in the UK and requires specialist skills, training and qualifications. Whereas bookkeeping can be done by good technicians who don’t necessarily need to be qualified or regulated by a relevant body, and you could even do it yourself.

We hope this video has helped you understand the differences between accounting and bookkeeping in more detail and taken you one step closer to knowing your numbers. Do you do your own bookkeeping? We'd love to hear from you in the comments section below!

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Our videos are for general guidance, education and empowerment in helping you understand accounting, tax and your numbers. They in no way constitute specific advice to your specific circumstances. Me & my team would be delighted to help you with your specific queries or accounting requirements through a formal engagement.

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