For most, bookkeeping and accounting are terms that are used interchangeably. But as you dig deeper into the difference, many factors come up. Before you decide what kind of software would benefit you more, distinguishing between the tasks performed by each software is necessary.
In a firm, the jobs of bookkeepers and accountants are separately defined. The functions may overlap, but only to a certain extent. The similarity lies in the fact that both deal with financial transactions. However, the nature of the interaction is different.
How does bookkeeping differ from accounting?
Bookkeeping: Imagine adding more stock of goods to your current inventory. There is an accounting entry for that. Then you sell some of it to a consumer on credit. He becomes your debtor. There is another entry for that. When this debtor eventually pays you what he owes, that too is recorded. Every financial business activity is entered into the books of accounts of a business. The art of recording these transactions is called bookkeeping. If you are aware of the accounting practices, you will know of the double-entry bookkeeping system. This is a method of accounting according to which the books are maintained. The job of proper maintenance of books of accounts is done by a bookkeeper.
Accounting: Bookkeeping is just the first step in the art of accountancy. What follows is the proper classification of these entries into ledgers. These are then checked for errors. Lastly, they are summarised into final statements. These help the decision-makers interpret the financial position of the firm. It further involves the analysis of cash flows, liquidity, solvency, and turnover of the firm. Overall, accounting is a much wider process than bookkeeping. It takes input from the recorded transactions to continue the financial process. Tasks like forecasting, budgeting, and planning also come under this.
Bookkeeping software vs accounting software: what does your business need?
The best free UK bookkeeping software stores and records your data. It is a digitised record of your transactions. Simply put, the software is an alternative to your physical financial records. More functions performed by free UK bookkeeping software include:
- It categorises the entries and ensures proper compliance with accounting standards.
- It maintains petty cash and the cashbook, entering daily transactions.
- It generates bills and invoices. It also automates recurring invoices, so they can be sent directly to vendors.
- It aids in tracking accounts receivable and payable. This ensures the proper collection of amounts from debtors.
- It helps in the reconciliation of bank statements. You can link the best free UK bookkeeping software with bank accounts. The software is also compatible with payment platforms such as PayPal.
- It facilitates proper tax calculations. Payment of VAT can be quickly done. Moreover, filing tax becomes easier, and can directly be sent to concerned authorities.
- It handles closing the books on month-ends. This adds up to simplifying year-end tasks when the accounting period closes.
In short, the best free bookkeeping software automates the job of bookkeepers. It reduces their burden by making tasks easier and quicker.
Accounting software involves the features of the best UK bookkeeping software. In addition to these functions, it adds analytical aspects. Moving forward with the financial procedures, it does the following:
- It accurately analyses cash flows. This helps in inspecting the liquidity of the business.
- It helps in indicating the solvency and profitability of the firm. Figures like profit and turnover can also be obtained using the software.
- It enables forecasting. This helps in the preparation of budgets so resources can be allocated judiciously.
- It provides a common dashboard so all information is available at a glance. It helps the management make better decisions.
- It enhances supply chain management by notifying any new purchases or orders. Proper inventory levels can be kept to avoid any disruption in the flow.
- It helps in achieving greater efficiency. Automation of tasks reduces risks of errors and supports better judgment.
Depending on the size and activities of your business, a choice can be made. The best free UK bookkeeping software automates recording. If you think that this task is what takes up a lot of your resources, the bookkeeping software is for you.
As the firm grows more complex, additional features are needed. This is where accounting software comes in. Proper analysis of records creates a complete picture of financial activities. Preparation of comparative statements with the help of the software broadens perspective. Forecasting based on recorded historical data prepares the firm for upcoming challenges. Ratio analysis that determines the trends in the functioning of the company is made possible by accounting software.
In conclusion, the best free UK bookkeeping software looks into day-to-day activities. The accounting software, on the other hand, looks at a bigger picture.