This is an odd one to explain, so let's see if we can gain some clarity, as it can be a trifle abstract.
To start, bookkeeping and accountancy both have the same aim, which is to draw figures together, but they do so very differently, with slightly different outcomes.
Definition
The loose/unnofficial definition is that bookkeeping is the first part of the accounting process. It's the act of recording the day-to-day workings of your business, whereas accountancy is the compliance aspect, the interpretation of that data.
In a practical sense, accountancy is the preparation of a set of accounts and it's accompanying tax return, regardless of your sole trader or limited company status.
The work of a bookkeeper and accountant often overlap, particularly when your accountant provides both services, and this is often where the confusion lies.
Example - Supposing you send in your books to your accountant?
You assure them that of course you’ve completed your bookkeeping, but in actual fact, all you’ve done is put your bank statements into one folder, and your purchase invoices in another.
You tell us that you’ve recorded your sales, but all you’ve done is give us a list of sales invoices, (if we’re lucky) and we have no idea whether those invoices have been paid or not.
Some of your purchase invoices have been paid by cash, others via the bank, and you haven’t identified the difference.
Your Aunty Mary has kindly lent you some money to buy stock/pay a bill, and you haven’t given us any information about it, so we assume that it’s sales, when it's actually not, and is classed as capital introduced.
Send those same books to a bookkeeper
The bookkeeper will analyse out your bank statements onto some kind of software (we’re talking Xero, Freeagent, Quickbooks here).
They will complete the following:
Reconcile your bank account (this ensures that the balance on paper matches the balance in the bank)
Match all of your sales invoices to the monies received in your bank account
Match all of your purchase invoices to the monies paid out.
Identify any missing purchase invoices and seek to locate them.
Do a list of debtors and creditors (who owes you, and who you owe)
Identify any invoices paid by cash, and process those.
Identify any personal expenditure or capital introduced (Aunty Marys loan).
Do you see the difference?
The bookkeeper is creating something rather beautiful. They're making sense of all of your pieces of information and bringing it to a decent standard, ready to send over to the accountant to do 'their bit'.
The accountancy 'bit' is to create a set of accounts, compromising of a profit and loss account and balance sheet, from which they then further calculate your tax return, making any adjustments necessary along the way, and then submitting the finished article (with your permission) to HMRC.
Let's just revisit that first scenario
You can now see that in order for your accountant to complete the compliance aspect and create your year end accounts and tax return, they need the accounts to be in the good order that they would expect from a bookkeeper.
If they’re not, then they have to complete that part first, and of course, this will be an additional service.
Why?
Your accountant only quoted for the compliance aspect, the books are not ready for work, and somehow, the bookkeeping has to be done.
So we tell you that we’ll have to do some bookkeeping, and that it will cost you £X amount. You agree, because its approaching the deadline and quite frankly, you should have sorted this AGES AGO.
We complete your bookkeeping and submit your accounts on time, with a bit of discussion because the profit is higher than you expected (should have hired a bookkeeper).
So what's the answer?
I see three options.
Engage an accountant, on the understanding that they will be completing your bookkeeping, leaving you to the day to day running of your business.
Hire a bookkeeper, and ask them to complete your books on a monthly or quarterly basis.
Do it yourself.
Which one will you choose?
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