Question 1

What is the difference between a bookkeeper, an accountant and an auditor?

Accepted Answer

Three distinct roles that differ in **what they produce, what qualifications they need, and — crucially — who they are working for**. The third distinction is the one that surprises people.

**A bookkeeper** records transactions: sales, purchases, receipts, payments, payroll entries, bank reconciliation. They keep the underlying records accurate and current. This is **ongoing operational work**, and it is what everything else depends on — poor bookkeeping makes accountancy expensive, because someone must reconstruct the year.

**An accountant** interprets and reports. They prepare statutory accounts, file tax returns, advise on structure and tax, produce management information, and handle the compliance calendar. **The title "accountant" is not protected in the UK** — anyone may use it — which is why looking for a qualification from a recognised professional body matters. Regulated activities like audit **are** restricted.

**An auditor** provides an **independent opinion** on whether financial statements give a true and fair view. The essential point: **an auditor does not work for the management who engage them.** The opinion is addressed to the shareholders or members, and independence requirements prohibit the auditor from involvement in preparing what they audit.

**An audit is not a fraud investigation**, and this is the source of a persistent misconception known as the expectation gap. It is designed to provide **reasonable, not absolute, assurance** that statements are free from material misstatement — so a determined, well-concealed fraud can pass an audit without the auditor having failed.

**Most small companies are exempt** from audit below size thresholds, which is why many businesses never encounter one.

**What you actually need, in sequence:**

**Bookkeeping** from day one — usually software plus either yourself or a bookkeeper.

**An accountant** for year-end, tax and structural decisions, with value concentrated in advice rather than in filing.

**An auditor** only where required by law, by investors, by lenders, or by a constitution.

**Payroll** is frequently a fourth, separate service.

General information, not financial advice.

Question 2

Why do you need a separate business bank account?

Accepted Answer

For limited companies it is effectively a necessity because the company's money is legally not yours. For sole traders it is not usually a legal requirement and is still the single highest-return

Question 3

What is the difference between cash and accrual accounting?

Accepted Answer

When a transaction is recorded. Cash accounting records it when money moves; accrual accounting records it when the economic event happens, regardless of payment. Cash basis. Income is recorded when

Question 4

What are management accounts, and how are they different from statutory accounts?

Accepted Answer

Statutory accounts are prepared to a legal standard, once a year, for filing and for tax. Management accounts are prepared for you, as often as you need them, in whatever form actually helps you

Question 5

What is the difference between revenue, profit and cash flow?

Accepted Answer

They measure three different things, and a business can be strong on one while failing on another — which is why profitable companies go bust. Revenue (turnover). The total value of sales in a

Question 6

What records must a business keep, and for how long?

Accepted Answer

Enough to support every figure in your accounts and tax returns, kept for a statutory minimum period that varies by record type and jurisdiction — and the burden of proof is on you, not on the

Question 7

What is EBITDA, and why is it criticised?

Accepted Answer

Earnings before interest, tax, depreciation and amortisation. It strips four things out of profit to give a figure intended to show operating performance independent of financing and accounting

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