The term accounting covers a whole spectrum of services. Wikipedia defines accounting as the production of financial records about an organization. The principles of accountancy are applied to accounting, finance, bookkeeping, and auditing. Accounting was first found in Mesopotamia, where people used accounting methods to record the growth of crops and herds. Over thousands of years it has grown into the complex systems that we see today to match the needs of businesses, governments and financial institutions.
So let’s look at what makes bookkeeping and accounting different. Both are concerned with the financial accounting of a company. However, that is really where the likeness ends.
Using the metaphor of a tree, Bookkeepers are the roots of the tree. They provide the foundation of creating a good audit trail of the day to day financial operations of the company. These activities would include:
• recording of the day-to-day financial transactions of an organization
• setting up a sound financial filing system, based on the set standards of either
double or single entry bookkeeping
• reconciling cash accounts and bringing all ledgers to the trial balance stage
• providing the business owner cash flow and cost information to help them
support and grow their business
• reviewing data and categorization for preparation to hand over to the accountant
• assisting in building a solid financial team for their business, ie. accountant,
payroll preparation companies, etc.
Accountants are the trees. They take the information that the bookkeepers provide and create reports and analysis to help the business to obtain financing, put a value on their business, plan for the future, and prepare for tax reporting. The word “accountant” comes from the French word “compter” which means to count or score. Accountants often assist business owners in making decisions of what type of company they want to create – sole proprietor, corporation, limited liability corporation, partnership, etc.
The limbs of the tree are the many different kind of accounting services available to assist with business and personal financial planning. Some of these would include: tax preparation, cost accountants, business valuation, and forensic accounting.
For a small business owner, the use of a bookkeeper on a regular basis is an important step. This will give them a good foundation (rather than keeping the receipts in a box) and save them money in the long run. Many business owners today opt to do their own bookkeeping, using a spreadsheet system or software. This is a fine plan as long as the right training is provided so that they understand the basics of bookkeeping and the functioning of the software.