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Accounting and Bookkeeping

Bookkeeping vs Accounting for SMEs

Bookkeeping vs Accounting for SMEs
Joshua Bartlett

By Joshua Bartlett

20 Mar 2024

Key differences between a Bookkeeper and an Accountant

Bookkeeping is essentially the most basic, and debatably the most important, level of financial reporting required by a business. Without the preparation of a company’s books, there can be no subsequent preparation of their tax returns or financial reports, whether that is the year-end accounts or management accounts.

Bookkeepers will use all of the financial records a company has available (primarily their bank statements, sales invoices and purchase invoices) and will turn this raw data into the ‘books’ of a company. The ‘books’ will be comprised of the profit and loss and balance sheet which, if regularly maintained, allow an SME owner to keep a close eye on their company’s performance, such as:

  • The profit and loss statement (i.e. financial performance).
  • The balance sheet statement (i.e. financial position).
  • The cash flow statement (i.e. liquidity position).
  • Sales ledger (i.e. trade debtors owing to the company at any given date).
  • Purchase ledger (i.e. trade creditors owed by the company at any given date).
  • Fixed asset register.
  • Payroll liabilities including wages payable, PAYE/NI taxes payable and pensions payable
  • Tax liabilities at any given date including corporation tax, VAT, PAYE/NI, etc.
  • Basic statutory filing requirements including payroll reporting and VAT reporting.

Whilst all of this information is of great importance to business owners, and readily available in modern-day bookkeeping software, accountants can take the work of a bookkeeper one step further. By using the information readily available, accountants can prepare in-depth management reports as well as the statutory financial reports required of an SME. These reports are then used to calculate the corporation tax liabilities for any given reporting period.

The key areas where accountants can deliver services, which bookkeepers can’t, include;

  • Preparation of year-end financial statements for filing with Companies House and HMRC.
  • Preparation of year-end tax computations for filing with HMRC.
  • Preparation of in-depth management reports, generally monthly or quarterly, including:
  • Management accounts.
  • Cash-flow statements and forecasts.
  • Budgeted vs actual performance reporting.
  • Budgeting and forecasting.
  • Comparisons of current year and prior year performance.
  • KPI analyses.
  • Advisory services including tax planning and business planning.

How a Bookkeeper can help your business

Bookkeepers can help SME owners keep on top of their business’s performance by providing what is essentially real-time information on financial performance, financial position and liquidity. Whilst this can only be reported on at the most basic level, it is much more beneficial to have this information readily available throughout the year, than to only have it available several months after the reporting year-end has passed.

Bookkeepers can also help business owners with record-keeping requirements, as most bookkeeping software will allow digital copies of records to be uploaded. This can be more efficient for SME owners as, rather than having to find historic records within a substantial amount of paperwork, they can instead be downloaded with a few clicks of a button.

As bookkeepers can help with the more straightforward reporting requirements of SMEs, including payroll filing and the filing of VAT returns, in some cases they may be more cost-effective than only using an accountant.

How an accountant can help your business

Accountants will help SME owners keep on top of their business’s statutory filing requirements, by ensuring financial accounts and tax computations have been filed with the relevant government bodies, by the legally required reporting deadlines. Reporting is therefore much more in-depth than that of a bookkeeper, not only as the reports will be filed with Companies House and HMRC, but as they are often much more susceptible to the scrutiny of stakeholders.

Accountants will also help businesses with their record-keeping requirements by preparing detailed working papers, which support the statutory accounts and tax computations. Working papers will go into far more depth than the bookkeeping software, ensuring that the company is compliant with legal reporting requirements and is properly applying all accounting standards which it has adopted.

In addition to keeping SMEs compliant with statutory filing requirements, accountants can also provide specialised advisory services such as tax planning and business planning, which a bookkeeper would not be able to do.

Accountants can therefore support SMEs with their more complex reporting, compliance and advisory requirements.

As an SME owner, do I need a bookkeeper or an accountant?

An SME will always need an accountant to meet its statutory reporting requirements, but will not necessarily need the services of a bookkeeper too, as accountants can offer all of the same services as a bookkeeper and more. Solely engaging an accountant is often the most cost-effective option as they can act as a one-stop shop for all of an SMEs needs.

However, where an entity has a substantial number of transactions or would like much more regular, real-time information, then it would often be sensible and more cost-effective to have a bookkeeper in place, whether that is in-house or outsourced bookkeeping. Interim financial reporting can then be carried out on a much more regular basis and can be more closely monitored by management. We offer a bookkeeping service, which can be included as part of our overall accountancy service or taken separately.

If you’re still uncertain as to which services you need, please contact us and we’d be more than happy to discuss.



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