Advances in technology have changed the way a lot of small businesses conduct their bookkeeping activities. For example, data is often imported from a bank or credit card feed into accounting software. It then sits in something akin to an electronic envelope, awaiting further instructions from a human. I applaud advances in technology, but there are limitations to these imports. I wrote about them here.
I might be wrong about this, but I have an impression that advances in accounting technology have also changed the way small business owners think about bookkeeping and accounting. It seems that their actual thought-process has changed. Here is what I see:
- They view QuickBooks as merely a database.
- They equate bookkeeping with data entry.
The problem is that QuickBooks is not merely a database. It is a database that creates financial statements based on traditional accounting theory. Each and every entry into the database has an immediate impact on the (double-entry based) financial statements. There is no intermediary step between the entry of the data and what happens on the financial statements.
So, good bookkeepers are not merely data entry clerks, because QuickBooks is not merely a database. Good bookkeepers know certain things, such as:
- In a general way, they understand that each entry immediately reflects upon the Balance Sheet and/or the Income Statement (aka Profit and Loss statement).
- In a specific way, they understand precisely what impact each entry unique has on those statements.
A data entry clerk understands neither of those things.
This has an important ramification for small business owners. If they are relying on data entry clerks to perform bookkeeping tasks (including the oversight of bank and credit card imports), the business owner has hired somebody who is creating an immediate impact on the firm’s financial statements. Yet, this person not only does not know this fact, the person does not know the specific impact each entry is having. If we were to write it like a math equation it would look like this:
This means that business owners who want accurate financial statements have two choices:
- Hire an experienced accounting professional to perform (or at least manage) the import process so that the imported information impacts the financial statements correctly.
- Hire an experienced accounting professional to make adjusting entries to the books so that the financial statements will be accurate.