Thursday, July 19, 2012

Accountant or Bookkeeper?


By definition bookkeeping is the recording of transactions into books and records held by some entity. Typically a business but, it could be any activity that involves tracking of money, quantities etc. Bookkeeping is actually a component of accounting. Accounting is a much broader term that may include financial reporting, analyzing financial information, verification of financial information, tax reporting just to name a few of the areas under accounting. To some degree a bookkeeper is to an accountant what a law clerk is to an attorney. Or perhaps what a nurse would be to a doctor.

            Unaware of this huge difference many people, even successful business people, unknowingly insult their accountants by referring to them as bookkeepers. Of course this could also go the other way where business people think their bookkeepers are accountants.  All of this is rather intriguing because when someone faints and drops to the floor like cold salami , rarely does one say; is there a nurse in the house? You don't here people say, I am going to have my law clerk sue you!  So why is it that when people have financial and accounting problems they think they need to get a better bookkeeper?

            A look at the financial statements of any publicly traded company will show the name of the Certified Public Accountants who prepared the reports and are attesting that management has carried out their responsibility in a fair presentation of the financial statements to the public.  Accountants employ rules that are commonly called "Generally Accepted Accounting Principles" or GAAP as the guidelines of how transactions should be accounted for and reported. In addition accountants employ " Generally Accepted Auditing Standards", or GAAS to make sure that audits are performed according to professional standards.

            Accountants play a very important role in giving financial statement users more reliable financial information from which to make business decisions. Decisions on how to invest, whether to make a loan or simply how well management does what is says it will do. In our capital markets money is allocated to businesses were management performs. It allows banks to make loans to companies that can repay their loans. In small businesses accountants also play a very important role. They help management make better business decisions based on information provided by their accountants.  Accountants, help in the compliance of loan covenants, tax laws, the payment of taxes just to name a few areas of importance.  Another perhaps, more widely known role accountants play is the role of trusted advisor.  A position earned after years of training, experience and demonstrated honesty and integrity.

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