As a former bookkeeper, I should mention that this is technically bookkeeping, not accounting, which vaguely corresponds to the difference between computation and programming.
That said, this is very dangerous knowledge; once bookkeeping makes sense like this you will constantly have to resist the urge to yell at people who claim "expenditure X really shouldn't count because it has benefit Y", which is a disturbingly common belief among otherwise smart people.
I wouldn't try to separate bookkeeping from accounting too much. As a cpa, the lines are blurred too often because we're usually making decisions and adjustments along the way.
But, a little information can definitely be dangerous. It can be a huge time sink to "restate" the books to suit someone's vision and at worst it allows people to misrepresent the information.
>I wouldn't try to separate bookkeeping from accounting too much.
I think of them as distinct and separate concepts:
bookkeeping: the recordkeeping of transactions. The "data entry". You can have lower wage data entry clerks tearing open envelopes to type in data from vendors' invoices and recording deposits of checks from customers. At this layer, the data needs to be recorded correctly.
accounting: literally the management of "accounts". This is a position of education (CPAs). Their value-added thinking happens above the layer of bookkeeping. They use professional judgement to set up a "chart of accounts" ... what kind of buckets to keep track of various money, how many buckets, etc. They are in charge of "closing the books" each month and preparing financial reports.
Yes, sometimes the activities blend into each other. Some bookkeepers do higher level "accounting" activities and some Certified Public Accountants also do grunt work of "bookkeeping" but they're still separate cognitive activities.
Lastly, there's finance. The finance layer sits above accounting and bookkeeping. Finance management (CFO, treasurer, etc) focuses on strategy of money. Should the company lease or buy the building, the tax implications of foreign earnings, stock buybacks, etc. The accountants & bookkeepers can report exactly how much money is sitting in the bank but they are not the ones who decide what the best strategy is for it.
It's the small businesses where "bookkeeping" and "accounting" are synonymous (e.g. using Intuit QuickBooks). In those mom & pop shops, the "finance" strategy is handled by the owner(s) of the company.
From your description, it sounds like bookkeeper:accountant as DB-user:DB-admin - the accountant/admin defines the schema, and the bookkeeper/user only gets to work at the data level, with no metadata level decisions. Is this analogy sound?
I believe this is a good analysis if you see the DB administrator in the role of scheme and report design, interpreting reports, and using those reports to plan for the future, and the DB user as inserting new rows (never updating!) and doing simple queries on the data.
I've wondered the difference between a good bookkeeper and a CPA. After looking at your comment, I finally looked up the requirements to become a CPA. I won't list them; they are easily found online.
I have wondered the difference, because I had two friends who had vastly different incomes, but were doing essentially the same work.
My first friend(former girlfriend in college) became a CPA, and was working for a small VC.(when I knew her I don't think they were calling themselfs venture capitalists? They were just small cap investment firms--basically a rich guy who invested in small business.) Well, since she was a CPA she had no problems in obtains jobs, and salary was not an issue.
I guess she was a good accountant?
My other friend who dropped out of school, and didn't get his bachelor's degree went into bookkeeping. He took a tremendous amount of business and accounting courses at various community colleges. He wanted to get his CPA, but didn't have the auditing experience(not required anymore in CA), and didn't have a bachelors degree. He did some amazing things for just a bookkeeper. He was highly instrumental in making the owner of a small local bike manufacturer a multimillionaire. He was always working, but never got close to the salry of the CPA. I recall him saying he coukd pass all four sections of the CPA exam, but couldn't get his license because he lacked the education/auditing requirement.
I have thought about the two over the years; and without a doubt If I needed an accountant, I would hire my friend without the CPA license. Why, because I know what he did professionally. I still think about that deal he put together. I know we need a CPA licensing system, but don't discount the bookkeeper with the spectacular work history?
My point is get that CPA if you can afford it? I'm pretty sure the bachelor's degree can be in any major. You need certain amount of accounting courses, and a one year of experience working under any CPA, at any company.
(What I find troubling in CA is under Brown--it appears Lobbiests got their mits on Gov. brown and made it harder to gain entrance into certain professions. I'm not sure if easier, or harder to become a licensed CPA before Brown? I do know he caved into the Realeste brokers lobby. It is harder to become a real estate broker under Gov. brown. When Gov. Scheartzenegger was hit by the Reators lobby he said, 'I'm sorry. I don't want to make the broker's license more difficult to obtain. You haven't presented one instance where the old system failed?' He vetoed the bill.
That day, I went from a militant, strict Democratic to someone who didn't care which party you were affiliated with.)
This doc is part of a series. I just skimmed the first two docs (this '101' and tthe next '102'). They do a reasonable job of introducing accounting.
I've conducted training sessions in accounting (for people whose day job is something else) at several tech firms. Two things I've found drive the points home are:
- having to make a series of debit/credit transactions (from a supplied description of stuff that has happened)
- having to work out what certain items on a balance sheet or income statement mean
It's hard to appreciate the beauty of the accounting equation until you see how the balance sheet, income statement, and cash flow statement are related.
As a Canadian CPA, CA (and also programmer), I think the difference between bookkeeping and accountancy is the need for judgement.
A bookkeeper will record transactions in designated accounts using the process that has been indicated for that type of transaction. However, the bookkeeper will not be evaluating the revenue recognition process to establish when it is reasonable to record revenue (versus deferred revenue, a liability) as a transaction relates to the standards in effect. It is also likely that the bookkeeper will not be responsible for making calls as to whether certain situations should be recorded as contingent liabilities or simple F/S note disclosures or for things like testing intangible assets for impairment.
For a typical tech startup, there are probably fewer situations that give rise to the need for an accountant than bigger, more complex entities. That being said, I suspect that many start-ups with complex cap tables are not reporting in full GAAP / IFRS conformity simply because this is likely not something required by the users of their F/S.
I had an opportunity to be the manager of a multi-million dollar contractor's office. It included bookkeeping among many other things. Never before had I realized the power of cash-flow, but also the destruction.
On paper there were many employees that made more annually than the CEO.
This may not be what the op had in mind, but I remember my first bookkeeping (mostly AR/AP/payroll) gig. Watching the books was like watching the tide. Cheques from customers seemed to come in waves, and you'd watch the bank account swell. But then, you'd do a monthly payable run and a few days later you'd enter a big payroll with the monthly expense reimbursements. All of a sudden, the funds in the bank account started to dwindle...until the next wave of cheques...
Just got back to this. But almost exactly. I'd deposit the biggest checks I've ever seen. But they'd be gone almost immediately if we zeroed the AP. It completely changed the phrase of "letting the bills pile up" for me.
For what it's worth, I never once payed a late fee. I'd pay the original amount no matter how late and never heard a word from the receiving end's AR department.
Since our product bridges the gap between bookkeeping, accounting, finance and engineering, and because this is aimed at developers, we're building the knowledge up from bookkeeping in part 1, to accounting basics in part two.
That said, this is very dangerous knowledge; once bookkeeping makes sense like this you will constantly have to resist the urge to yell at people who claim "expenditure X really shouldn't count because it has benefit Y", which is a disturbingly common belief among otherwise smart people.