Bookkeeper vs accountant - What’s the difference?

What’s the difference between an accountant and a bookkeeper? No, it’s not the setup to a terrible joke; it’s a genuine question that many people have, and rightly so. If you have just set up your own business, it can be confusing to understand the differences between them and know what help they can offer.

As a licensed accountant, it’s a question that is often asked, so here is my simple guide to help you understand the differences between them.

What’s a bookkeeper?

Simply put, a bookkeeper is someone who provides bookkeeping services. What’s bookkeeping? Bookkeeping is the recording of the business’s transactions. So, a bookkeeper would write down all the income the business receives and all the purchases the business makes. When they write down these transactions, they also put them into categories—for example, Sales, Advertising, Computer expenses, Insurance, etc. So, if your business has lots of receipts, your bookkeeper could help you keep track of what you are spending by categorising them for you.

A bookkeeper also keeps track of how money is spent or received. For example, if you sell something, you may receive payment by cash, credit card, or debit card and issue the customer a receipt. However, you may issue an invoice instead; this is a bill for the customer, usually payable within 30 days. A bookkeeper may generate this invoice for you and may also chase up a customer if the invoice hasn’t been paid within the payment terms. Alternatively, they could let you know the customer hasn’t paid, so you could contact them. The same is true for purchases; a bookkeeper would keep track of how items/services were bought and let you know about any bills that need to be paid.

How does a bookkeeper record transactions?

Until computers, bookkeepers recorded business transactions in books and ledgers. Today, bookkeeping is generally done using software such as QuickBooks, Sage, Xero, or Freeagent. These are computerised accountancy systems that help you keep track of your business with data entry and can also generate reports to help give you a clearer picture of your business.

Other bookkeeping services

In addition to the day-to-day bookkeeping, a bookkeeper may provide services such as completing payroll and drafting VAT returns.

What’s an accountant?

An accountant uses a business’s records of transactions to produce the accounts and tax returns. They use the work of the bookkeeper to help create financial statements such as the Profit and Loss Statement (a statement that shows the profit or loss for a business over a time period), the Balance Sheet (a statement that shows the assets, liabilities, and equity of a business at a certain date), and the Statement of Cash Flows (a statement that tracks the cash coming in and going out of the business over a time period).

Accountants require professional qualifications, whereas bookkeepers do not. Accountants can also provide services that bookkeepers can’t, such as preparing financial accounts for statutory purposes, budgeting and forecasting, management accounting, personal income tax, and corporation tax.

Are accountants also bookkeepers?

Accountants can also be bookkeepers. Accountants will have knowledge of bookkeeping, but they can take it a step further by using the bookkeeping data to provide accountancy services. Although an accountant will have knowledge of bookkeeping, an accountant may not offer bookkeeping services and may instead just be an accountant, not an accountant and bookkeeper.

Which one do I need?

If you are a sole trader or a limited company, you have a responsibility to keep financial records. Some business owners are comfortable maintaining their own bookkeeping. However, it can be helpful to have a bookkeeper maintaining the business records for you while you focus on the more exciting parts outside of the numbers. Also, as your business grows, the level of business transactions can become difficult to maintain single-handedly, so it can be useful to have someone to help maintain it for you.

If you are a sole trader, you are responsible for submitting Self Assessment Tax Returns. You could choose to complete and submit this yourself; however, it can be useful to have an accountant to do this for you, especially if your business is complex.

If you have a limited company, you have a responsibility to prepare and file your annual accounts and Company Tax Return. An accountant can help you fulfil this responsibility, whereas a bookkeeper would not be able to.

Need more information about your responsibilities?

Below are the links to the government website listing your responsibilities:

Sole Trader: https://www.gov.uk/become-sole-trader

Limited company: https://www.gov.uk/running-a-limited-company/company-and-accounting-records