Accounting and Bookkeeping are very similar yet different services. To the untrained eye, they look the same. But for those who practice the art, they know the difference very well. This article will translate those differences and allow you to distinguish between these services.
Imagine you’re at your first mixed martial arts tournament. Both fighters seem to have the same style, but in reality, they are entirely different. Let’s say you only knew what their fighting style was. One fighter’s style is Muay Thai Kickboxing. The other is Jiu-Jitsu. Would you be able to tell the difference?
A trained eye can, an untrained eye, however, cannot. Muay Thai is a striking art whereas Jiu-Jitsu is a form of ground fighting, grappling, no striking. Muay Thai is the most dominant stand up martial art on Earth. While Jiu-Jitsu is different, grappling has both a defensive and attacking position.
I like comparing financial services to fitness or fitness related activities. If you’ve read our article Financially Fit, then you’ll understand why. If by some chance you missed that article, you can view it here.
While accounting takes a more aggressive approach to financials. It is responsible for interpreting, classifying, analyzing, reporting, and summarizing financial data. When we interpret or analyze the information, we are proactive or striking at our financials. They have more education and a better understanding of Accounting principles.
Accountants use the financial information formed by a bookkeeper to report the financial condition of the company. An accountant can give you an analysis of your Monthly and Quarterly reporting while a bookkeeper may not.
Bookkeeping takes on a different approach to financials. Bookkeepers are responsible for the recording of financial transactions. Sometimes bookkeepers will also classify and summarize economic data into financial reporting. Bookkeepers primary role is recording information to determine that cash flow is available. Bookkeepers can also be involved in payroll processing.
The Bookkeeper maintains the general ledger. The ledger reflects day to day business transactions that are both incoming and outgoing. The bookkeeper records the entries and ensures that the data is correct to create a bigger set of financial information.
The various tasks can be split to produce different reports for Daily, Monthly, and Quarterly purposes. A bookkeeper is usually held accountable to an accountant or the business owner whose books they maintain.
What works for you?
Ideally, you’ll want to find out what fits into your business or personal life. Some business owners understand their finances. If you don’t, this is an excellent investment to make for your business, whether it be time or money. Understanding your financials is an integral part of running a business.
Accounting outsourcing pros
There are many accounting outsourcing pros for your business, but I’ll cover the main ones.
The time you save is detrimental. I’m talking about time spent reconciling your books, checking the accuracy, learning, and implementing new systems. All of this while continuing to sell, meet customers, and hire employees.
You save money on software. When outsourcing accounting jobs, it is more likely that the accountant will have their software. If you did it yourself, you would have to purchase the tools to help you.
You’re paying for an expert. You get the knowledge they’ve obtained as well as the experience gained while working in the field. When you pay for an expert, you’re purchasing time that you might have spent trying to become one. You may learn something quickly, but only with time can you gain mastery.
Reliable support is another accounting outsourcing pro. It’s helpful for you to have someone to depend on, your accountant is there to help you fix your problems.
Accounting outsourcing cons
Less control. It’s true by not hiring someone directly onto your company you will have less control. However, this control is not always a necessity. The best solution here is efficient communication. In today’s age, we have numerous tools available for us to communicate with colleagues, vendors, and even friends.
Through efficient communication, you can not only feel in complete control but without doing any of the work. If your current accountant keeps you in the dark, you might want to do some shopping for efficient communication. The goal for Anguiano Consulting is to for you to drive the car, without worrying if it’s going to keep running.
There is less oversight for you on your business’s financial accounts. At Anguiano Consulting, we recommend initially meeting whenever you receive and review your reports. When you understand the information, we recommend meeting once a quarter minimum or what you feel comfortable. The idea is not to keep you in the dark. The idea is to take all of the manual data entry labor off and report the creation of your team.
Having an outsourced accountant on your payroll allows you the opportunity to reach an expert when a problem does occur.
Pros and cons of doing your own accounting
There are many pros and cons of doing your accounting, but there are only two things you should focus on, time and knowledge.
Time and knowledge are the two variables you’ll need to consider if you plan on doing the accounting for your business. It’s great to have it in your control, but part of being a business owner is learning how to delegate all great leaders delegate. You’re starting a business to free up more time, not the opposite.
Have you identified your knowledge gap? The things you don’t know is what will cost you the most. If you’ve taken accounting courses in college and feel comfortable about the idea of tackling your accounting, then go for it. However, on the other hand, if you have no experience in business finance, consider hiring an expert.
Do you have the time to create the knowledge you don’t have?
Bookkeeping outsourcing pros
The primary bookkeeping outsourcing pro is that you’re hiring a professional. In our article, we discuss how professionals are worth their weight in gold.
As stated in accounting pros, you won’t have to pay for software or tools. Your bookkeeper will have the tools required to accomplish the job for you.
One of the best outsourcing pros for your business is customer service. You now have a team dedicated to managing your books and bookkeeping services go hand in hand with customer service. At Anguiano Consulting, our clients come first.
The last bookkeeping outsourcing pro is emergencies. If there is an emergency, your outsourcing team should be able to adapt and adjust. However, if the emergency occurs in the house, your left to clean up the mess and deal with the fallout. Outsourcing teams are more likely to have a backup in place should anything occur.
Bookkeeping outsourcing cons
Bookkeeping services won’t solve all of your problems, so consider these bookkeeping outsourcing cons next time your shopping.
The accountant has a lack of business and industry knowledge. Although this is fixable through efficient communication, a lack of industry knowledge can cause problems for financial reporting. Understanding how a bookkeeper can help meet your needs is vital before working with a professional.
Lack of professionalism. You might not think this is a big deal, but how we do one thing is how we do everything. Attention to detail is a primary bookkeeper skill, and with this skill comes a level of true professionalism.
Pros and cons of doing your own bookkeeping
While there are pros and cons of doing your bookkeeping, there are questions you should consider before you decide.
How big will your business grow?
How big your business will scale is extremely important; if it’s only you, then you can probably handle the task alone. Building a foundation for your accounting process is extremely important. How you’ll pay your employees and how you’ll create a company policy that has your businesses back.
The bigger your business is the more questions you’ll have to answer, and the more your attention you use. If it’s only you, maybe all that’s needed is an accounting mentor to set you up for success. Find out about our mentorship program today.
It’s not what’s served, its how you serve it
Presentation is everything, and it’s how you can quickly identify a skilled professional from a cheap amateur. In accounting, it’s not whats served, its how you serve it. Any bookkeeper can put a bunch of numbers together to create an income statement. Most software will generate a profit and loss statement from a template with the information you’ve data entered.
An accountant job is to translate this information so that you understand what your business financials are.
Imagine if you were dining out with your significant other and the waiter throws your food in your lap. You paid for the meal, but the menu doesn’t specify how its served. The waiter is there to give you an experience, that’s what you’re paying for, not the meal. He wants you to have a positive experience.
Just as an accountant shouldn’t dump reports into their owner’s laps (which we’ve seen). However, we are glad to review because businesses change, and the internal controls that Anguiano Consulting can help you implement is all about delivery.
The most common problems we see are; a lack of internal controls and managing account payables or account receivables.
A lack of internal controls can cause collateral damage if there are errors. I call it a single point of failure. That’s why we have systems and procedures to follow in business, to prevent a single point of failure. A sound system is productive, but a fantastic system caters to the habits of the employees.
A sound system is productive, but a fantastic
system caters to the habits of the employees.
I mean it promotes a healthy environment that doesn’t enable negative habits will support and empowers the team with positive habits.
Failure to manage your businesses account payables and account receivables can result in volatile cash flow. If not attended to, they can cause more significant problems like negative cash flow and lack of inventory.
You can always cook a home-cooked meal, but if you’re looking for a 5-star dinner, you might consider outsourcing.
The evolution of accounting
How did accounting come about and what use did it have throughout history? The evolution of accounting is seen first in early Mesopotamia. One of the most significant factors was a change from concrete and exact accounting to abstract accounting.
Many believe that accounting practices evolved because of the trading activities of temples.
Clay tokens on clay scripts used in what’s believed to be the invention of a type of bookkeeping. Evidence suggests that someone in Egypt held the title, “Comptroller of the scribes,” pointing to a system of hierarchy in accounting and bookkeeping practices. Were the scribes were more likely, some of the earliest bookkeepers.
One of the most critical breakthroughs took place during the 13th century in Europe. The introduction of double-entry bookkeeping. In double-entry bookkeeping there is a debit and a credit entry for each transaction.
The oldest recovered record of a full double-entry system is the Treasurer’s accounts of the city of Genoa in 1340. The treasurer accounts contain debits and credits for each transaction and carry forward the balances from the preceding year.
The credited origination of the double entry bookkeeping system was given to economist Benedetto Cotruli’s 1458 publication which wasn’t approved until 1573. The book, Della mercatura e del mercante perfetto, explains merchandising as art.
Today, we have regulations, standards, and ethics tied to accounting principles. Accountants have always been a part of society. They continue to evolve their role in helping others with the ebb and flow of money. Every one of us is affected by the most basic accounting principles during our lives and our days.
Modern accounting is the product of millennia of everyday people growing their lives and the lives around them. With the introduction of large scale manufacturing and supply, there was an urgent need for accountants that could handle the international complexity of the world, and calculate different values while staying aware of any changes to the tax code.
Accounting evolved into a profession from which we continue to develop it today. Many accountants fill multiple hats because of their capabilities and the way they approach problems. Accounting became a necessary part of a business and the financial system.
Computers allowed us to automate the tedious task of written recording with typing and syncing capabilities. The software has been introduced to handle complex tasks and simplifies reporting for the accountant. As automation improves, how do you see the role of the accountant evolving?
I will always see a need, and I’ll explain why through washing windows. Window washing is something I know almost nothing about but still introduced to through the lobby of my barber. What caught my eye was the mention of artificial intelligence. Artificial intelligence is something I find fascinating because we’ve defined it in ways that don’t yet exist.
One thing is certain. Artificial intelligence will continue to shape our culture in ways that the automobile did but tenfold. This article on window washing discussed the dilemmas with using artificial intelligence. After all, many of the tall buildings in New York and Los Angeles would benefit from an automated window washer.
The article explained the benefits first, of course, how could anyone not see it. Companies would save hours and hours of man labor. The problem was, what would happen if the robot came across a window that was cracked or needed repair? Cleaning it no longer serves as the obvious choice because it is more likely to cause more damage. The robots couldn’t analyze what was needed, and that could be more costly than the working hours saved.
I see the same thing happening in accounting. One day we will be able to automate an in-depth financial report analysis based on the current, past, and projected economic systems in minutes. The work is done, but there’s still the last barrier, adaptation. What happens when a new problem presents itself? What if the numbers don’t explain how to fix it?
Accounting in many ways has evolved from bookkeeping and knowledge in one only complements the knowledge in the other. Understanding why your business only needs bookkeeping or how accounting can provide you with financial transparency is important. The right tools will always help you but the wrong tools can hurt you.
Accounting and bookkeeping will likely continue to evolve as our culture does with the way we interact with money. If you include these services today, your business will evolve as society does. If you neglect them, your business will have problems you won’t be equipped to solve.