Many small business owners are not financial experts. In our experience, when we talk to people about supporting business tasks such as bookkeeping, we’re often asked ‘what is bookkeeping?’. Bookkeeping can be daunting for small business owners, largely because they see it as being time consuming and difficult.

What’s in this article to explain bookkeeping?

What is bookkeeping?

  • The difference between bookkeeping and accountancy
  • The key approaches to bookkeeping
  • Do you need bookkeeping software?
  • Why bookkeeping is important for small businesses
  • How to outsource your bookkeeping

Put simply, bookkeeping means recording financial transactions and is the first part of the accounting process. These transactions include purchases, sales, receipts and payments made to or by the business. A bookkeeper can also be responsible for raising purchase orders, invoices and expense reports.

While single- and double-entry bookkeeping are ‘named’ methods of bookkeeping, any way of recording financial transactions can be classed as bookkeeping. A reliable bookkeeping service will manage these key finance tasks for you, and can also help you with decision making when it’s time to find additional resources and confirm whether your business can afford to pay for them.

What is bookkeeping? An introduction to the basics

Bookkeeping stands at the core of every thriving business, providing a clear picture of financial health and guiding informed decision-making. At its simplest, bookkeeping involves the systematic recording, organising, and maintaining of all financial transactions within a company. This includes many tasks, from documenting sales and purchases to detailing receipts and payments. Through diligent bookkeeping, businesses safeguard their financial accountability, ensuring that every penny is accounted for. This ensures accuracy in financial reporting, which is important for assessing your business’s performance, and planning for its future. Whether you are a sole trader or a larger business, maintaining up-to-date and precise financial records through bookkeeping is not just a regulatory requirement but a cornerstone of good financial management. 

The difference between bookkeeping and accounting

Understanding the nuances between bookkeeping and accounting is crucial for any business owner looking to maintain accurate financial records. To recap, bookkeeping is the process of systematically recording daily financial transactions, ensuring a complete and organised documentation of all sales, purchases, payments, and receipts. This lays the foundation for the more analytical role of accounting.

When we answer the question, ‘what is bookkeeping’, we describe it as maintaining ledgers and ensuring that each financial transaction is accurately represented in the correct accounts. A bookkeeper’s duties include the meticulous categorisation of each entry and reconciling bank statements to ensure consistency and accuracy. It serves as a preliminary step towards effective financial management, allowing for a seamless transition to the strategic insights provided by accounting. In a digital era, businesses increasingly rely on software tools for this key financial task, underscoring the importance of integrating technology into your bookkeeping practices. Whether your business is just starting out or looking to refine its financial systems, understanding and effectively implementing bookkeeping principles is a crucial step towards financial clarity and success. 

What is bookkeeping, and what is accountancy?

Here are some of the main differences between B2B bookkeeping services and accountancy services:

Nature of tasks
  • Bookkeeping typically involves the day-to-day recording of financial transactions, such as purchases, sales, receipts, and payments. It’s largely operational and transactional.
  • Accounting is more analytical and interpretative. Accountants use the information compiled by bookkeepers to prepare financial statements, conduct audits, and make strategic financial decisions.
Decision making
  • A bookkeeper’s role is mainly to ensure that records of financial transactions are up-to-date and accurate, which doesn’t involve making financial decisions.
  • Accountants often play an advisory role, using the data maintained by bookkeepers to guide business owners and managers on financial planning, forecasting, and decision-making.
Financial statements and reporting
  • While bookkeepers are responsible for recording financial transactions in the ledger, they typically don’t generate financial statements.
  • Accountants use bookkeeping data to prepare key financial reports, including the profit and loss statement, balance sheet, and cash flow statement, essential for understanding a company’s financial health.
Qualifications and skills
  • Bookkeepers are usually proficient in data entry and may hold certificates or diplomas, but they don’t necessarily need a tertiary degree in accounting or finance.
  • Accountants often require a higher level of formal education, such as a university degree in accounting, and may also hold professional qualifications like a Chartered Accountant (CA) or Certified Practising Accountant (CPA) designation.
Regulatory knowledge and compliance
  • Bookkeepers must work under the supervision of a recognised supervisory body, or be registered with HMRC as offering financial services. There are some exclusions to this – read our blog on HMRC requirements for bookkeepers to find out more. They must also follow the UK’s money laundering legislation. Based on our experience, some outsourced bookkeeping services may not follow these requirements, so you should always check before you commit.
  • Accountants need a comprehensive understanding of accounting principles, tax regulations, and financial reporting standards to ensure that a business’s financial operations are legally compliant and strategically advantageous.
 Scope of role
  • A bookkeeper focuses on maintaining accurate records of financial transactions in a systematic, chronological order.
  • An accountant’s scope goes beyond recording, encompassing the interpretation of financial data to provide insights into business performance and potential future trends.


What is bookkeeping: The key methods

Primarily, bookkeeping can be categorised into two predominant styles: single-entry and double-entry systems.

Single-entry bookkeeping is a straightforward approach often favoured by small businesses, where transactions are recorded just once, either as an income or an expense. Conversely, double-entry bookkeeping, the gold standard for larger enterprises, requires each transaction to be entered twice, as both a debit and a credit, in separate accounts. This dual aspect ensures a system of checks and balances that enhances accuracy and provides a comprehensive view of the company’s financial health. 

What is bookkeeping: Single and double entry approaches

Simplicity is at the heart of the single-entry bookkeeping method. This system is ideal for small businesses or sole traders for whom comprehensive accounting may seem overwhelming or unnecessary. Here, transactions are recorded once, either as income or as an expenditure, in a simple ledger or spreadsheet. For example:

  • A freelance graphic designer might use a single-entry system to keep track of their received payments (income) and business-related purchases such as software subscriptions or new equipment (expenses).
  • A sole proprietor running a small coffee shop would record daily cash receipts as income and payments to suppliers or service providers as expenses. This method offers a straightforward way to keep an eye on cash flow without the intricacies of more complex accounting needs.

Larger businesses and those requiring meticulous financial documentation gravitate towards the double-entry bookkeeping system. With each financial transaction recorded twice, once as a debit in one account and once as a credit in another, this technique provides a robust mechanism for ensuring financial accuracy. For instance:

  • A manufacturing business may record the purchase of raw materials as a debit to its inventory account and a credit to its accounts payable.
  • When a retail company makes a sale, it would debit its cash or accounts receivable and credit the sales revenue account, simultaneously reflecting the movement in assets and the increase in income.

The double-entry approach not only maintains a comprehensive ledger but also enforces a system of checks and balances that is essential for preventing discrepancies and fraud.

What is bookkeeping software, and do you need it?

In today’s digital age, bookkeepers have access to a myriad of software solutions designed to streamline bookkeeping processes. These tools support both single-entry and double-entry systems and come with features such as automated transaction recording, bank reconciliation, and report generation, enabling real-time financial analysis. For example:

  • Cloud-based bookkeeping software allows businesses to update their financial records on the go, with facilities for attaching digital receipts and setting up recurring expenses.
  • Advanced accounting platforms offer integrated payroll services, tax preparations, and inventory management features, offering an all-in-one solution for bookkeeping.

While manual bookkeeping is an option, it is time-intensive and prone to human error. In contrast, modern software solutions offer a myriad of functionalities that can streamline the process, ensure accuracy, and save valuable time. For instance, these tools can automate repetitive tasks, offer real-time financial insights, and enable secure data storage. They also frequently align with the latest HMRC regulations, making tax compliance a more straightforward affair.

However, before you invest in any bookkeeping software, it’s essential to assess your business needs, the size of your operation, and the level of complexity your finances entail. For those just starting out or managing smaller ventures, free or low-cost bookkeeping software might suffice. Conversely, larger businesses might benefit from more robust systems with advanced features like multi-currency support, inventory management, and detailed reporting. Remember, the goal is to choose a solution that offers the right balance between functionality and ease of use, ensuring that your focus remains on growing your business rather than getting bogged down in financial minutiae.

If you’re considering outsourcing your bookkeeping, it’s worth knowing that you can give your bookkeeper access to your accounting software, so that you are confident everything is being done properly and in accordance with your processes.

Why is bookkeeping important for small businesses?

Day-to-day, bookkeeping enables a business to meet payment deadlines to suppliers and to keep track of what is owed to it from customers. Cash flow management is essential to the long-term survival of any business, and it would not be possible without either an in-house bookkeeping resource or an affordable bookkeeping service.

Looking to the future, bookkeeping supports business planning. It enables business owners to set goals and make projections for the future more easily. It also helps to evaluate the performance of a business – whether it is growing or stagnating – and allows business owners to adjust their strategies accordingly to remain on track to meet financial and growth goals.

Why outsource your bookkeeping?

Outsourcing your bookkeeping can be a strategic move for businesses looking to streamline financial operations. By entrusting this critical function to dedicated professionals, companies can reap a multitude of benefits. When comparing the expense of an in-house bookkeeper – inclusive of salaries, training, and benefits – to the cost-effective services provided by a skilled external team, the financial advantages become clear.

What’s more, outsourced bookkeeping services ensure expertise and compliance, as these specialists are well-versed in the latest accounting software, regulations, and tax laws. This level of proficiency not only enhances accuracy but also provides valuable insights into financial performance, allowing business owners to make informed decisions. With the day-to-day financial tasks competently managed, entrepreneurs are free to focus on core business activities, driving growth and innovation. Therefore, outsourcing bookkeeping is not simply a cost-cutting measure; it is an investment in the company’s efficiency and future success.

Things to consider when outsourcing your bookkeeping

  • What is bookkeeping preventing you from doing? Which tasks should you outsource?
  • Is your chosen bookkeeper properly regulated, and do they understand their responsibilities?
  • Can they work with the software you use?
  • Do they have the experience and approach you need?
  • Are they able to manage your bookkeeping as your business grows?
  • Are you confident in their abilities?

You’ll almost certainly benefit from outsourcing your bookkeeping, but it is worth taking the time to find the right support and be confident that your day-to-day finances are in safe hands.

Although bookkeeping is both necessary and advantageous to business owners, it can be very time consuming. In addition, it is essential to be accurate and therefore it is not a job that can be rushed. So whether you decide to do your own bookkeeping or outsource the job to one of the many bookkeeping services in the UK it’s something that must be done and done well.

If your book keeping requirements are keeping you awake at night or you would like to learn about either our remote bookkeeping services or our other virtual office assistant services call us on 0800 994 9016 or use our contact form in the menu above


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