Rose Report: Issue 31

Financial Management, Accounting and Bookkeeping – What’s the Difference?

financial management accountingWhen it comes to managing finances, a multitude of service offerings exist for businesses. But due to the high volume of CPAs and accounting firms, it can be difficult—and time consuming—to tell the difference between one level of service versus another. As a leader in finance and accounting outsourcing, we have over 22 years of experience in understanding these different service offerings, as well as the ability to guide your business towards a tailored solution, regardless of size, industry or even location. But knowing the difference between these services can also help you make an informed decision in choosing the finance and accounting solution that will be the best fit for your business—so let’s start with the basics.

What is Financial Management Accounting? 

Financial management accounting is the support most often associated with the Chief Financial Officer (CFO) and finance department of a company. These services primarily involve looking into the future by converting a business plan into a budget or financial model and helping a company manage to its plan. CFO’s provide management and the board with financial clarity and visibility into the financial results—why they occurred and what can be done to improve financial performance in the future. These services include financial oversight, financial trend analysis, cash management, debt management, board and management reporting, dashboards, benchmarking, budgeting and forecasting.

What is Accounting?

Accounting is the process of converting financial transaction data into accrual based financial reports that are utilized to report financial performance to management and other stakeholders. This process includes reviewing and overseeing accounting transactions, ensuring that an organization has an adequate internal control structure, a month-end closing process which converts transaction data to an accrual basis and a financial management accounting reporting process that gives meaning to all of the financial information.

What are Financial Transactions?

Financial transactions include account payables and cash disbursements to vendors, billing and cash receipts from customers, payroll to employees and equity to and from shareholders. A properly configured accounting system will ensure that there is an adequate internal control structure in place, that transactions are recorded contemporaneously with their execution and that only properly approved transactions are executed.

 What’s the Difference Between Bookkeeping and Accounting?

The posting of financial transactions is often associated with the tasks that a bookkeeper performs.   Keep in mind that bookkeeping is the processing and recording of financial transactions after they have already occurred. In the vast majority of cases, bookkeepers do not build and maintain adequate internal control environments, putting organizations at risk for material errors and irregularities or fraud. While bookkeeping occurs reactively, a full-service accounting outsourcing solution will support a company proactively. When this is accompanied by meaningful accrual based financial statements that are timely and accurate, the risk of material errors and irregularities decreases significantly.

While bookkeeping creates some financial visibility, a properly designed and managed accounting outsourcing solution improves financial performance through financial clarity.

What are Internal Controls?

Internal controls are the financial controls an organization puts in place to ensure financial transactions are properly coded and approved. A properly functioning internal control structure is critical to ensure the accuracy of a company’s financial statement and management reports.

Are all Financial Management Accounting Outsourcing Solutions Equal?

There are three methods in which U.S. based accounting outsourcing solutions can be delivered:

  1. Shared Service Center Model – This method is a full-service accounting outsourcing solution that provides all accounting functions an organization will need from a centralized offsite location. This model allows for the strongest internal control structure, proper supervision and oversight of accounting staff and the best opportunities for long-term cost-effectiveness.
  2. Disbursed Workforce Model – This method allows for home based workers to support clients remotely. This provides for lower labor and overhead costs but can create unexpected internal control weaknesses, challenges related to supervision and oversight of staff. This model tends to be geared towards a bookkeeping model.
  3. Client Site Support Model – This method puts staff onsite at the client office. This method is generally not cost-effective and results in a weakened internal control structure as it tends to put too many task in the hands of one key onsite accountant. Many of the risks of maintaining an internal accounting department remain with the client as turnover of this key staff usually results in significant loss of the client knowledge-base.

Working together, each of these elements provide businesses with a complete look into their finances. The ideal solution for your organization will provide meaningful financial information and guidance that is timely and accurate, ultimately providing you with improved financial performance through financial clarity. Learn more about Rose Financial Services’ offerings to find the best fit for your company’s finance and accounting needs.