Accounting is a broader term and it encompasses bookkeeping in itself. So bookkeeping is a subset of entire accounting system. The fact is that a proper and accurate bookkeeping paves the way for the accounting which includes organizing, classifying, summarizing, reporting and presenting the financial reports of the organization.
Bookkeeping Primarily Involves:
Proper recording of financial transactions
Organizing and recording of the financial transactions is the main step of bookkeeping. So the day to day recording of transactions in the books of accounts is the process of bookkeeping. The proper, accurate and timely recording of the financial transactions is the pivotal for any strong accounting system. Without accurate recording of transaction, it is very difficult to imagine the correct financial reports like profit and Loss account, Balance sheet or Cash Flow etc.
Preparing General and other supplementary ledgers
Before the automation of the bookkeeping in the computers with the help of latest software, there used to be recording such financial transactions manually by accountants in the manual hand-written records. In today’s modern and digital world it is beyond imagination, that how such records were used to be maintained manually by accountants.
During that time, the transactions were first used to enter in the separate Cash books, bank books, journals etc and then from there, these were posted to various ledger accounts. The manual bookkeeping was really used to be a tedious and time consuming job for the accountants. But with the invent of latest accounting softwares, the bookkeeping has become quite easier and cost effective. The features like linking bank accounts, invoices, supplier invoices or direct upload of transactions from various sources in the accounting software has resulted in a revolution in the accounting. Now once a financial transaction is entered in the software, it is directly posted to respective ledger accounts and updates the financials of the organizations.
Bank Reconciliations
Bank reconciliation is the process of comparing the bank ledger accounts / records as maintained in the accounting books of the organization with the banks statements issued by the bank. The aim of the bank reconciliation is to identify the discrepancies, if any between these two sets of documents. This helps in accurate accounting records as well prevents the theft and fraud of money lying in the bank accounts. Some people have opinion that reconciliations are the part of accounting and not bookkeeping but the fact is that without reconciliation, the books of accounts are never complete and therefore cannot be separated from the process of bookkeeping.
A/R and A/P Reconciliations
The next important component involves reconciling accounts receivables and accounts payables. In big organizations, separate departments for A/R and A/P handle the proper recording and maintenance of records for customers and suppliers. They also manage receivables and payables from customers and suppliers, respectively.
Apart from above in some organizations few other processes like issuing invoices, payroll recording are also considered as part of bookkeeping.
Simplicity and Complexity of Bookkeeping
Multiple Currency Transactions
The simplicity or complexity of bookkeeping not only depends on the size of the organization but also on the type of transactions. The opening up of the global and digital economy has expanded transactions beyond local/domestic currency. It now includes financial transactions in multiple currencies due to issuing invoices to customers in different parts of the world and making payments to suppliers, contractors, or other service providers. The transactions in multiple foreign currencies involve conversion of the same into local currency as per the GAAP and recording the transactions. The recording of such transactions and keeping the track of payments for such transactions always require good knowledge and skills of bookkeeping and accounting.
Bookkeeping of Multinational Companies
In many cases of multinational companies, the parent companies requires its subsidiaries, associated and group companies to report the transactions in a particular manner which is in line with global policy of the parent company which may include IFRS reporting or SOX compliances or GAAP of the foreign parent company. Some situations, while recording the transactions in the books of accounts, the organization has not only to take care of its own domestic Accounting GAAP as well as to consider the parent company policies. And in some cases the organizations may have to maintain accounts in multiple currencies, depending upon the volume of foreign transactions, parent company’s policies etc.
Importance of Accounting Knowledge of Bookkeeper
Some people have opinion that bookkeeper (or bookkeeping and accounting services provider in Canada) may or may not have accounting knowledge and cannot be called an accountant. But the fact is not completely true. For e.g. though in some repetitive jobs like simply uploading invoice data in the accounting software or issuing invoices to customers, a person doing such jobs may or may not have accounting skills, it may not affect much to such transactions as well as the organizations. But if we talk about small and medium size enterprises or considering the complexity of transactions like transactions in foreign currency or passing the routine journal entries in the accounting software, it is utmost important that the person must have good bookkeeping and basic accounting knowledge.
Accounting
After recording of transactions in the books of accounts by the bookkeeper, the next step is to draw the useful financial information from such bookkeeping records. Accounting is the process of analyzing, classifying, summarizing, interpreting and reporting the financial data or results from financial records. In simple terms ‘accounting’ helps in summarizing and interpreting the financial records in a more useful and understandable manner to the various stakeholders like owners, shareholders, CRA, Bankers, Creditors etc. On one hand the Accounting reports helps in planning, controlling and decision making of the management on the other hands it also helps in evaluating the financial health of the Organization.
The important Accounting reports include:
- Profit and Loss Account or Income Statement
- Balance Sheet
- Cash Flow Statement
Besides there are other several accounting and management reports which an accountant prepares and uses for day to day decision making analysis:
- A/R Ageing Report
- A/P Ageing or Overdue Reports
- Ratio Analysis
- Budget Vs. Actual financial reports
- Manufacturing Expenses Reports
- Sales Reports
- Payroll Reports
- Cost of Sales Reports
- General Expense Reports
Simplicity and Complexity of Accounting and the Role of an Accountant
So, the simplicity or complexity of bookkeeping and accounting depends upon the size as well as various other factors which affect the entire accounting system of the organizations. It is always easy and better to lay down a strong and robust accounting system at the initial stages of the business. Considering the fast-changing technologies, growth, and other conditions, an organization may decide to upgrade its old accounting system and records in line with the company’s or parent company’s requirements. In such cases, it is always important to plan and implement the transition from the old accounting system to the new, modern, and upgraded system carefully.
In the bookkeeping process, one cannot undermine the role of an accountant. The initial bookkeeping records maintained by the bookkeeper lays the foundation of the accurate, timely and strong financial reports. Errors in recording the transactions by a non-trained bookkeeper or accountant will not only provide the erroneous and faulty records but at the same time cannot help to prevent the financial frauds in the organization. Further to rectify such records, it is always a time consuming and redundant exercise. Therefore, organizations need to ensure that a competent accountant properly performs or supervises bookkeeping activities to maintain an efficient and accurate accounting system.
Account Tax Pros – Your Trusted Bookkeeping and Accounting Services Provider
At Account Tax Pros, we being professional CPAs understand the importance of accounting and book keeping therefore we always aim to deliver accurate and timely accounting records and financial reports to our clients.
To help our client, we also have arrangement to provide bookkeeping training and accounting training course for their staff and other team members.
