| For many people, the job titles of accountant and | | | | As a more specific example, let’s compare |
| bookkeeper are interchangeable. After all, doesn’t | | | | straight-line and double-declining balance depreciation. |
| a bookkeeper maintain the accounts of a business by | | | | To oversimplify, in straight-line depreciation the cost of |
| tracking accounts receivable, accounts payable, rent | | | | the equipment is divided by the number of years of its |
| expense, payroll, etc.? The answer is yes, a | | | | “useful life” (less the salvage cost, or final |
| bookkeeper does perform all of these accounting | | | | “worth,” of the equipment once it has reached |
| functions. So why does an accountant get paid so | | | | the end of its useful life). This gives a depreciation |
| much more than a bookkeeper? Aren’t they one | | | | amount that is the same year one as it is year ten. It |
| in the same? | | | | is a very neat and reliable method to use, as there is |
| To answer this question, we can first think back to | | | | no variation in the fixed amount. |
| geometry. To say that a bookkeeper is equivalent to | | | | |
| an accountant is like saying a square is equivalent to a | | | | With the double-declining balance method, however, |
| quadrilateral. Both are shapes with four sides. But a | | | | the amount of the depreciation is much more the first |
| square is a specific type of quadrilateral with all four | | | | year than it is the tenth year. Think of the interest on |
| sides equal in length and four right angles. A | | | | your mortgage. During the early years, the majority |
| quadrilateral, on the other hand, is more | | | | of your mortgage payment is interest, compared to |
| encompassing. A rectangle, a square and a | | | | the final years when almost the entire amount paid |
| trapezoid all are quadrilaterals. All have four sides, but | | | | goes to principle. We all know that the tax |
| it is the length of those sides and the angles between | | | | advantage of a mortgage is that you can deduct the |
| them that differentiate these shapes. The same | | | | interest paid. Your tax deduction, much like the tax |
| holds true for accounting. Bookkeeping is a very | | | | deduction using double-declining balance depreciation, is |
| specific part of accounting which looks at the tracking | | | | more the first year than the tenth year, since you pay |
| of money being spent and earned. We all do | | | | more interest early on. Using the same principle and |
| bookkeeping by (hopefully) balancing our | | | | accountant can elect to have a greater deduction for |
| checkbooks. But accounting, like a quadrilateral, is | | | | depreciation, or a greater offset to the revenues |
| much more encompassing. Accountants use a | | | | generated, by choosing the double-declining balance |
| technique called matching, which goes way beyond | | | | method. This is not as neat, but it allows for more |
| standard bookkeeping. Beyond basic bookkeeping, | | | | cash to be reinvested in the company during the first |
| accountants must make decisions regarding the | | | | few years, when it may be more needed. |
| “how, when and why” of documenting a | | | | |
| businesses finances. Matching is a principle used to | | | | As you can see, accountants have a lot more |
| allocate debits and credits to certain accounting | | | | responsibility for the financial success of a business, |
| periods and reconcile across types of financial | | | | both on paper and in the eyes of potential investors, |
| statements. Although there are strict laws | | | | than do bookkeepers. Although bookkeepers do |
| governing accounting, there is a certain amount of | | | | perform some basic accounting functions, please do |
| flexibility that allows accountants to have some control | | | | not confuse them with accountants. |
| over the outcomes of their financial statements. | | | | |