One of the common difficulties in accounting is reconciling the various misconceptions people have about bookkeeping. Bookkeeping means many different things to different people
- Some people use bookkeeping and accounting as synonymous terms. They assume that keeping a company’s books, preparing financial statements and tax reports are all part of bookkeeping. While this would certainly fall within the realm of accounting, bookkeeping is just a small piece of what accountants do.
- Others see bookkeeping as simply the act of recording transactions in journals and/or daybooks and then posting those amounts into the correct accounts in ledgers. After the amounts have been posted, the bookkeeping has ended and an official accountant takes over. The accountant will make adjusting entries and prepare financial statements and various reports.
- Further distinctions between bookkeeping and accounting have been distorted with the rising use of accounting software. For example, a person with little bookkeeping training can use the accounting software to record invoices from vendors, prepare invoices for sales, among other automated functions of the software. The software will then update the correct accounts in the general ledger automatically and can generate financial statements with the click of a button. One of the difficulties with this is the fact that the reports will only be as good as the data that has been put into them. A program is not always able to spot the discrepancies someone trained in bookkeeping would be able to see.
- At mid-size and larger corporations the term bookkeeping might be missing altogether. These corporations will often have whole accounting departments with accounting clerks who process accounts payable, accounts receivable, payroll, and other areas. These clerks will generally be supervised by one or more accountants.
These are just four examples of what bookkeeping can mean to different people and different size organizations. As you can see, it can be confusing if you don’t have the right system in place. We want to help you learn the best bookkeeping system for your organization and make sure you know how where it fits in the overall accounting equation.
If you’re not sure if you’re using the correct system or have questions about how we can help improve your current system, we’d love to hear from you. Contact our Joplin office and schedule a consultation with a qualified CPA.