What is bookkeeping?

What does bookkeeping actually involve?

Each transaction is recorded once, with a date, an amount, who it was with and what it was for. A sale is an invoice; a purchase is a bill or receipt; a bank movement is matched to one of those or categorised on its own. The record is the ledger, and everything else reads from it.

Done weekly, it takes minutes: file the receipts, raise the invoices, confirm the bank matches. Done annually, it takes a miserable weekend and produces worse numbers, because a receipt from ten months ago is a mystery and a bank line with no explanation gets guessed.

The purpose is not the record for its own sake. It is that the VAT return is a summary rather than a calculation, the profit figure is real rather than hoped for, and the year-end is a review rather than a reconstruction.

A worked example

A week in the books of a self-employed dog groomer:

How is bookkeeping different from accounting?

Bookkeeping records what happened. Accounting interprets it: adjusting for accruals and depreciation, preparing the statutory accounts, working out the tax, advising on what the numbers mean. One is daily and mechanical; the other is periodic and judgemental.

The boundary has moved. Software now does most of the mechanical part — reading receipts, matching bank lines, drafting the VAT return — and an accountant's time goes on the parts that need a person. An accountant who logs into clean books charges less than one who has to build them first.