Important Distinctions Between Accounting and Bookkeeping
Differences between Accounting and Bookkeeping? Why is this relevant? If you’re Business Owner, you may ask, “so what,” and you would be right!
Business Owners usually do not draw a distinction between Accountants and Bookkeepers, if they have an issue with regard to their financial records and data. They expect that issue whether it’s more Accounting-related or more Bookkeeping-related to get resolved.
Accounting and Bookkeeping are both necessary and both interdependent, but hiring someone with expertise in one without the other can be problematic. Understanding how QuickBooks is structured, the necessary workflows, and how to edit records and data (and fix problems) are necessary to being called a Bookkeeper, but without an understanding of Accounting it becomes very difficult to deliver credible services to clients.
Distinctions Between Accounting and Bookkeeping – Defined
Simply put, Accounting and its’ associated rules, estimates and principles (Generally Accepted Accounting Principles or GAAP) provides guidance on how entries or records should be (or need to be) made to reflect the intent and substance of a transaction.
To highlight, Accounting can be separated into two distinct fundamental areas – proper Financial Accounting (compliance) and Managerial Accounting (data that business Owners/Partners/Managers need to make informed business decisions).
Bookkeeping, on the other hand is, usually involved with the mechanics of making the transaction. For example – the act of entering transactions, editing records, correcting errors and maintaining records that should be done in accordance with the correct accounting treatment.
Your Business Survives on Good Data – Important
Engaged and savvy Business Clients need accurate and sound (underlying) data to perform further analysis of financial statements to understand the historical, “where has this business been,” question and to use this same data to make logical assumptions as to where this business is headed (forecasts).
This data (and the financial statements) is the logical output of the work that accountants and bookkeepers perform. If the methods or work are flawed or incorrect, the financial statements, depending on the magnitude of the problem may either be erroneous or worse, misleading. Client’s that base their decisions on statements that are less than reliable could prove to be a costly mistake. As an example, I’ve experienced situations where a client’s gross income was overstated (due to the misclassification of bank deposits that overstated revenue). This led to tax liabilities and payments in excess of what they were obligated to make.
Businesses are diverse and evolve over time, but some things, like accurate financial records will always be a necessary constant. At a minimum, clients need friendly, competent, proficient, accounting and bookkeeping services. As technology improves and makes outsourcing of accounting functions more attractive to clients of all types and sizes, these independent contractors will need to become more flexible, and fluent in many aspects of accounting (depending on the complexity and scope of work and the type of clients each firm chooses to engage) and increasingly, more service-centric.
Client’s Expectations and Technology
Clients will continue to “raise the bar,” and expect a greater depth of those services that will help them navigate the uncertainties of (future) economic cycles as well as the changing complexities of the tax code, to name just two. And, the ability for firm’s to render these more complex (Advisory) services depends on the fundamentals of having accurate, sound financial records and data.
Finally, as technology evolves and improves, the differences between Accounting and Bookkeeping will likely become more blurred and more business owners will correctly claim, that any differences between Accounting and Bookkeeping will become less relevant.
Does your business have accounting or bookkeeping issues? Book a Call.