What's the difference between an accountant and a bookkeeper - and what do you really need?
Accounting and bookkeeping - what they are and what they mean
The first thing to note is that the work of a bookkeeper and accountant overlap, as bookkeeping is part of accounting. Bookkeeping, as the word suggests, is about ‘keeping books’ and is the first step in the accounting process.
The bookkeeper is the person who is responsible for keeping an accurate and complete record of the financial transactions of a business. It is, by and large, a mechanical process that does not involve any analysis of the financial transactions, but instead just a recording of the transaction.
However, bookkeepers play a vital role in the efficient running of the business by, for example, recording the payments and receipts of the business while ensuring the correct amounts are paid and received (and at the right time).
The bookkeeper will follow a prescribed set of procedures on a repetitive basis to record each and every transaction that happens on a daily basis. This is then tallied at the end of the day and also at the end of the month. Common bookkeeping tasks such as issuing invoices to customers, recording cash receipts from customers, recording invoices from suppliers, paying suppliers, recording inventory, processing payroll and petty cash transactions are entirely adequate for the accounting needs of very small businesses.
An accountant, on the other hand, would focus on the bigger financial picture and performs tasks that affect the whole accounting process. They would build on the information provided by the bookkeeper and then classify, analyse, summarise, interpret and report the financial information. The books must be kept up to date and accurate by the bookkeeper, but then they are passed to the accountant for further financial analysis which adds some meaning.
The accountant would analyse and interpret the financial data for the business to forecast the financial statements and evaluate efficiency. Additionally, the accountant could decide to work in variety of different areas such as financial accounting, management accounting, tax accounting, auditing or financial services.
Because of the similarity in the nature of the work of a bookkeeper and accountant, often the terms are used interchangeably.
Accounting and Chartered Accountants
Many people who call themselves bookkeepers are actually qualified as accountants. To differentiate themselves from "Chartered Accountants" their formal title is "Accounting Technicians". All of our bookkeepers are qualified according to the standards set out by the professional body called the Association of Accounting Technicians, or AAT. At the higher levels AAT qualifications include things like audit, tax, preparing statutory accounts, management reporting and self assessments.
Chartered Accountants are professionals who have completed the required degree level study supplemented with workplace experience and a professional competence programme, and are members of a professional body such as the Association of Chartered Certified Accountants.
Do I need a Chartered Accountant to do my annual report and accounts and tax returns?
The short answer is, if you are a small business or sole trader, you don't need a Chartered Accountant in any capacity.
For larger companies and PLCs there is a legal requirement for an Annual Audit, and then you'll need a Chartered Accountant to complete a statutory audit for your company.
Here's when this becomes necessary;
Any charity that falls below a gross income of £1,000,000 or less for accounting periods ending on or after 31 March 2015 (£500,000 or less for prior accounting periods), unless both their gross assets exceed £3.26m and their gross income exceeds £250,000), can choose to opt out of a full audit. Most are required to obtain an alternative assurance service, independent examination.
Companies that qualify as small companies under Companies Act 2006 are usually exempt from audit, unless they are members of a group or are charities and required to follow the charity audit thresholds.
The definition of a small company: a company is small if for both this year and last year it was not ineligible, and it met two out of three of the following criteria:
|For periods beginning before 1 January 2016:||For periods beginning on or after 1 January 2016:|
|Number of employers||<50||<50|
For virtually all small businesses - and many medium sized businesses - a bookkeeper who is qualified as an accounting technician can do everything you need. Whitehill offer complete packages to take away the complexity and cost - have a look here, or get in touch. You can be confident your books are being well managed, your reporting is being done accurately and professionally, and as specialist providers of cloud accounting software, that you're taking advantage of the latest technology to keep things simple and cost effective..