Bookkeeping and Accounting: How does outsourcing help?

Dec. 12, 2008 - PRLog -- In one of the earlier article, we understood the meaning of accounting, which has been defined by AICPA as “The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof”.

What then is bookkeeping? Is it same as accounting or there is any difference between the two?

Form a generic point of view, the two terms have been used interchangeably but there are some inherent differences. And it would be a good idea to know the difference between the two so that when a decision has to be made regarding outsourcing, a business can make a relevant strategic decision.

Bookkeeping is referred to as the recording of the value of assets, liabilities, incomes and expenses in the books of accounts.

Bookkeeping is therefore only a part of accounting per se. While the recording of transactions under correct account heads is part of bookkeeping, accounting encompasses a larger role in the sense that it involves summarizing these recorded transactions and interpreting the results there from. http://www.aptservicesonline.com/data.asp

Mathematically, if accounting is a “set” then bookkeeping is a “subset”.
While the person responsible for bookkeeping is called “bookkeeper”, the person responsible for accounting is called “accountant”. Some of the differences between bookkeeping and accounting are as follows:

a.   The knowledge and skill needed for the two also varies a lot. While anyone with a simple understanding of debits & credits can do bookkeeping, accounting needs far better skills and expertise.

b.   When a business starts its operations and wants to start recording the transactions, a bookkeeper can not be expected to prepare the Chart of Accounts, though with the help of modern day software like QuickBooks, it is possible for a layman also to build a Chart of Accounts.

c.   In fact, with the aid of the software, a bookkeeper may be expected to generate the Trial Balance and also the financial statements. But the bookkeeper cannot be expected to give an analysis of the financials to the business owner.
d.   Similarly, for preparing a budget, help of accountant is needed as the same cannot be done by a bookkeeper.

e.   Any suggestions on improvement can be expected from accountant but not a bookkeeper.

f.   An accountant is expected to handle the complexities pertaining to various prevalent laws better than a book-keeper.

g.   And most importantly, business can expect an accountant to prepare all kind of tax returns/forms but the same cannot be expected from a bookkeeper.

It is thus clear that while a bookkeeper does all the basic tasks, it is the accountant who will handle all the complex tasks.  
So how does it help a business by understanding this difference between a bookkeeper and an accountant?
Understanding this difference can be helpful to businesses who want to outsource a part of their accounting function. Some of the issues that a business considers before outsourcing are:

a.   What kind of dependence can the business have on the outsource service provider?

b.   What kind of data can the business divulge to the outsource service provider?

In fact, many businesses start off outsourcing accounting by way of outsourcing the bookkeeping function or even a part of it like AP processing or AR processing. As and when the business gains confidence in the abilities of the outsourced accounting provider, other functions are also slowly transferred to the outsourcer. http://www.aptservicesonline.com/bookkeep.asp

In APT, clients have experienced better outsourcing avenues because, even when only bookkeeping is outsourced, APT provides value added services like providing the business with higher end reports like the Cash Flow Statements, the Cash Forecast, AP & AR ageing reports and comparative financial analysis reports. This approach has helped APT in making clients comfortable in outsourcing the entire accounting function to APT Services.

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