Many people use the terms accounting and bookkeeping interchangeably, but the reality is that one is a subset of the other, and both do not refer to the same thing. Bookkeeping is the recording of financial transactions only, whereas accountants also analyse and interpret the financial data. Bookkeeping basics are just a small function of the overall accounting role. Let us look specifically at a few important functions of an accountant.
Regulatory Compliance –
Every firm is expected and required to report its financial status for the year at any of the regulatory authorities mandated by the law of the land. For example, in UK, every company must deliver company information to Companies House. Not only regulatory compliance with government agencies, but an accountant needs to also maintain the internal schedule of the company for financial reporting. These internal schedules are usually related to internal audits in the company, and the accountant must ensure that internal financial reporting is done regularly and is error free, so that the audit can proceed smoothly.
Completion of Financial Reports –
The financial performance of a company every month is also an area of interest for the senior executives of the company. Therefore the financial summary needs to be created every month by the accountant. For the monthly snapshot, a daily bookkeeping effort is required, and many companies use bookkeeping software for that. All these monthly flows would be collated to get the annual financial statement. The annual report would not only help the executives get an idea of the year gone by, but it would be the basis on which budgetary forecasts and target setting for the next financial year would be done.
Analysis of Financial Performance –
There are several business decisions that need to be taken only after a proper analysis of the existing financial data. The financial decisions are almost wholly dependent on the financial reports, but even business decisions can sometimes get more clear headed focus after analysing the financial reports. For example, the relation between advertising costs, revenue generated, and overall expenses can be looked into for two to three past years to see what the efficacy of advertising has been. So an accountant can open up new lines of thought regarding not only financials but also about other aspects of the business.
Management Of Data –
This is the function of an accountant that is most closely related to bookkeeping. The daily financial records maintained by a bookkeeper has to be used by the accountant to maintain his data in a clean and compliant condition, and this data will later help in preparation of the monthly, quarterly or annual statements. Some knowledge of bookkeeping basics is needed for financial data management. The accountant must know how to do bookkeeping, and then utilize that knowledge to come up with databases and also use this daily and monthly data to maintain financial control on operations.
Financial Face Of The Company –
Often a company needs to interact with external agencies, regulatory bodies, audit firms, and even other companies, and in such instances, the auditor is the public face of the company’s finances.
Let us now examine the accounting role in a bit more detail to see what are the areas where attention is needed, and which are the things that can cause problems for the company if they have errors.
Reconciling Regularly :
This would not only need error free entries into books (in terms of correct numbers), but also the entry under correct heads, so that the books balance on both debit and credit sides. The problem with wrong numbers is that the longer they go undetected, the more difficult it becomes to spot them later.
Keeping Track of Potential Defaulters :
Not all clients pay in advance or exactly as per a particular invoice. The gap in every invoice amount and the amount actually paid must be tracked diligently so that any part payment doesn’t get missed out later. These gaps also need to be scrutinized carefully to ensure that any potential defaulters can be called out in time and corrective steps taken accordingly.
Avoiding double or extra payments :
Just like incoming payments, an accountant also needs to have a firm grip on the payments that need to be made, so that the payments are made only when goods or services are actually received. There is a possibility of overcharging too, maybe not intentionally but by mistake, and those need to be diligently checked. When a company has different agreements with different vendors and suppliers, some are paid in advance and some afterwards. A confusion regarding this might cause some payments to be paid twice, once in advance and then again after receipts, which must be checked against.
Categorization of income :
Depending on the type of business, the revenue needs to be booked under the proper head. Income from a company could be due to sales, or it could be due to commission. A company might earn interest on its bank deposits, or it could get an income by selling off some of its assets. The correct amount needs to be input into the correct category to avoid wrong reporting later.
Currency Conversions :
With the increased globalization of so many businesses now, a good understanding of the dynamics of foreign currencies is very important for an accountant. A company in the UK might have customers from all over the world, and their payments would be converted into British pounds at the prevailing conversion rate on that date. Most bookkeeping software would have the ability to get their currency rates updated in real time, but the accountant needs to keep a close watch on the daily changes to ensure that every change is actually updated.
Consistent Practices :
This could be a problem when there is a change in the accounting team in the company. A particular accountant might consider a certain income or expenditure under a particular head, and the new accountant who replaces him should understand the records completely and ensure that he continues the same practice, otherwise the books would go wrong.
Tracking Cut Off Date :
Every financial statement has a ‘from’ and ‘to’ date, which means it is created for a specific period of a week or month or quarter. Every accountant needs to decide whether he would go for the cash accounting system or the accrual system. What this means that he could either record an entry into his books only when the money is actually received, or he could keep the amount on his books as an ‘accounts receivable’. That will ensure that the cut-off date is adhered to. If the financial report is being made for a month, and a particular invoice is not received till the end of that month, then the accountant can book the amount under accounts receivable, and later, when the money is actually received, he would debit the head of ‘accounts receivable’ and credit the cash head.
Cash Heavy Business :
Many large corporations run almost entirely using cashless transactions, but for medium or small enterprises, a large part of the transactions are in cash, while some companies work entirely on cash. For such companies, the accountant needs to have a system in place where the cash is checked and counted daily, or even at the end of each shift.
As you can see above, the job of an accountant is pretty challenging both externally and internally. There are so many small and large issues to be taken care of. The accountant might know how to bookkeeping, but the daily bookkeeping activities might not leave him enough time to do his compliance or analytical work. That is why a number of accountants and accounting firms are outsourcing the work of bookkeeping. We are one such company providing bookkeeping services. We can do the bookkeeping on behalf of accountants, since we are equipped with proper bookkeeping training and bookkeeping software, so that there is no gap between the books maintained by the agency and the real accounts in the company. Instead of an accountant worrying not only about how to do bookkeeping but also how to take out time from his other activities for taking care of bookkeeping, he could very easily outsource the job of bookkeeping to us. This would allow him to focus on the more analytical and regulatory functions of his role. Additionally the firm or the accountant would get the following advantages :
- Bookkeeping is a daily task and an outsourced bookkeeper would devote adequate time to it.
- The accountant can have a supporting hand in maintenance of daily accounts.
- The accounting team can easily get a daily view of the accounts without having to spend time for it.
- This time can be more fruitfully spent on the other activities listed above.
- Sometimes accountants worry about the money that would be spent in outsourcing bookkeeping, but the fact is that this move will end up saving much more money in the long run, because the accountant can do his other work well.