В. Accounting and Bookkeeping

The terms accounting and bookkeeping are often mistakenly used interchangeably. This confusion is understandable because the accounting process includes bookkeeping but goes well beyond it in scope. Much narrower and far more mechanical than accounting, bookkeeping is typically limited to the routine, day-to-day recording of business transactions.

Bookkeeping is just one part of the accounting process. Bookkeepers deal with taxes, cash flow, which includes cash receipts and cash disbursements, sales, purchases, and different business transactions of the company. Bookkeepers first record all the appropriate figures in books of original entry, or journals. At the end of a period, usually a month, the totals of each book of original entry are posted into the proper page of the ledger, a book or computer program with separate files for each account. This process is known as posting. The ledger shows all the expenditures and all the earnings of the company. On the basis of all the totals of each account in the ledger, the bookkeeper prepares a trial balance. Trial balances are usually drawn up every quarter.

Accounting, on the other hand, involves the entire accounting process, including measuring, analyzing, and communicating the results of economic activities. The accountant’s responsibility is to analyze and summarize the data in the ledger and the trial balance. These account data are used by the accountant to prepare financial statements. The accountant is to determine the ways in which the business may grow in future. No expansion or reorganization is planned without the help of the accountant. The work of accountants is rather sophisticated; special training allows them not only to record and interpret financial information, but even to develop sophisticated accounting systems necessary to classify and analyze complex financial information.

С. Accounting Professionals

Accounting – along with such fields as architecture, engineering, law, medicine, and theology – is recognized as a “profession”. Accounting professionals work in a variety of areas in and for business firms, government agencies, and nonprofit organizations. They can be classified as public, private, government, and not-for-profit accountants.

Public accountants are independent of the businesses, organizations, and individuals they serve. Public accountants work for a variety of clients and they prepare financial statements, compute taxes, and provide consultation for individuals and organizations. They perform such accounting service as auditing – a formal evaluation of the fairness and reliability of a company’s financial statements. A growing area for public accountants is forensic accounting, which involves analyzing financial documents in search of fraudulent entries or financial misconduct (corporate fraud costs are estimated at $600 billion annually). Public accountants may earn the title of CPA (Certified Public Accountant) by passing rigorous certification exams on accounting theory and practice. Certification gives a public accountant the right to express, officially, an objective opinion regarding the accuracy of the client’s financial statements.

Private accountants are in-house accountants employed by organizations and businesses to maintain financial records. Private accountants specialize in different areas of accounting such as cost accounting (computing and analyzing production costs), tax accounting (preparing tax returns and tax planning), financial analysis (evaluating a company’s performance and analyzing the costs and benefits of strategic decisions) or internal auditing (evaluating the operation of company departments to determine their efficiency). Corporate accountants also help prepare a company’s budget – an internal financial plan that forecasts expenses and income over a set period of time, often one year. Private accountants can be CPAs and may become certified management accountants (CMAs) by passing a rigorous examination by the Institute of Management Accountants.

Government accountants work for governmental agencies or bureaus. Not-for-profit organizations, such as churches, labor unions, political parties, charities, schools, hospitals, and colleges, also hire accountants. In fact, the not-for-profit sector is one of the fastest-growing segments of accounting practice. Accountants in the public sector concern themselves with determining how efficiently organizations accomplish their objectives, rather than profits and losses. Private, government, and not-for-profit accountants are paid on a salary basis, whereas public accountants receive fees for their services.

Most company accountants work together as a team under the supervision of the controller, who reports to the vice-president of finance. Controllers are responsible for measuring the company’s performance. They interpret the results of the operations, plan and recommend future actions. This position is very close to the top managers of the compamy. The controller of a medium to large corporation monitors and cross-checks all financial data in order to evaluate the company’s financial health at any given point. In smaller companies the controller may be in charge of the company’s entire finance operation and report directly to the president.

For hundreds of years, accountants have recorded, or posted, accounting transactions through manual entries in journals. Computers have simplified the process, making it faster and easier than the manual method. Accounting software programs are used widely in both large and small businesses today.