It’s safe to say that a lot of freelancers, contractors and entrepreneurs come across a few key business labels they’re unaware of. Quite often, too, these relate to the most fundamental parts of what you do. ‘Bookkeeping’ and ‘accounting’ might be the biggest areas of mystery – they are distinct from one another, even though they do experience some overlap.
Unsure what we’re talking about? Tired of being in the dark about such terminology? That’s fine, because we’re clearing things up here, seeing where the bookkeeping and accounting split really lies.
Organisation vs. analysis
At their core, both practices are something you’ll need for managing your cashflow, savings and tax submissions. Yet the basic difference is this – bookkeeping is about evidence collection, whereas accounting deals with the analysis and submission of said evidence. The first props up the other; we can’t know how to act for better financial security if there isn’t any data to support it.
A bookkeeper, then, looks over your records (receipts, transactions, investment returns etc.) and composes them into a timeline that makes sense. They match dates with the payments you receive or make. Steadily, an A to B progression of your finances is built over the tax year. Previous years’ records are maintained too, so you have backup for anything related to an earnings history.
Accounting, on the other hand, uses that evidence and digs down into what it means. Belts might be tightened in one area, for instance, to put more resources into others. Or perhaps bills are not being timed sufficiently well to meet your income schedule. There are dozens of potential slip-ups that an accountant can rectify, but their commonality rests on making the absolute most of what money you’re bringing in. It may also be defined as a means to declare your earnings accurately, to the right organisations.
So, bookkeeping can be pinned as an organisational technique that leaves no stone unturned for your financial health. In its wake, accountancy takes over, and makes judgements based on those facts.
The twin pillars of a financial plan
It’s worth repeating that these activities are symbiotic i.e. they cannot exist effectively without the other. This is where the overlap occurs: accountants have to be assured that the books are in order, otherwise they’re going off bad data. Both skills require a full, no-holds-barred view of your cashflow.
There’s a further quirk, however, in the fact that accounting has legal standards to uphold. Any independent worker can string dates together; the proof is plain when the evidence pairs up. To hit the right accounting standards, though, you have to be aware of HMRC legislation – how a tax return is compiled, where mistakes can be avoided, and which expenses slot into your business model.
Yet in today’s world, it’s far more convenient to opt for a smart, accessible meld of bookkeeping and accounting solutions, led by people who know each of them intimately. Bright Ideas can give you accountancy services (both remotely and face-to-face) that are fine-tuned for success. Beneath them, we provide access to FreeAgent, one of the most valuable bookkeeping platforms on the market. You’ll gain a transparent relationship that covers both sides of your professional blueprint.
To learn what we’ll do on every financial front, contact the Bright Ideas team today.
