Connecting Bookkeeping, Accounting Principles, and Economics Through QuickBooks Online

Charles Stoy
Sep 16, 2024
5 min read

Bookkeeping may seem like a simple task of keeping track of money coming in and going out, but it is deeply connected to the larger worlds of accounting principles and economics—both micro and macro. Understanding how bookkeeping interacts with these fields gives us the ability to not only manage financial records but also to make informed decisions that affect a business’s long-term success.

In this blog post, I’ll explore how the philosophical concepts from earlier blog entries—episteme, erkenntnis, hekima, Fingerspitzengefühl, techne, and kutengeneza—help bridge practical bookkeeping, accounting principles, and economic concepts. With examples from QuickBooks Online (QBO), we’ll see how these ideas apply to both day-to-day financial management and larger economic trends.

1. Connecting Bookkeeping with Accounting Principles: The Role of Episteme and Techne

Bookkeeping is the foundation of accounting. While bookkeeping involves recording financial transactions, accounting is about applying principles to organize, summarize, and interpret this data for decision-making.

Example: Accrual Accounting in QBO

In accrual accounting, revenue and expenses are recorded when they are earned or incurred, not when the cash actually changes hands. This accounting principle helps paint a clearer picture of a business’s financial health.

Episteme (Theoretical Understanding): You understand that accrual accounting provides a more accurate reflection of profitability by aligning expenses and revenue with the time they’re earned, not paid. This is crucial for decision-making because it prevents the distortion of financial results.
Techne (Practical Skill): Using QBO, you apply this principle by setting up automatic accrual entries. For instance, when a customer places an order, you record revenue even before they pay, ensuring your financial statements are accurate. On the expense side, if you receive a bill but pay it next month, you log the expense when it’s incurred, not when it’s paid.

This practical application of an accounting principle helps you maintain consistency and accuracy in financial records. By applying techne, you use QBO’s tools to create journal entries that follow accrual accounting principles, while your understanding of episteme helps you see why this method matters for financial analysis.

2. Relating Bookkeeping and Microeconomics: Insights from Erkenntnis

Microeconomics is about the economic behavior of individuals or businesses. Bookkeepers manage the data that allows businesses to see how they are doing, and microeconomic principles help explain how that data impacts decisions.

Example: Supply and Demand in Pricing Strategy

Imagine you’re managing the books for a small business using QBO. The owner wants to adjust prices based on changes in supply and demand. As a bookkeeper with erkenntnis (deep insight), you recognize the microeconomic principle of supply and demand driving this decision.

Erkenntnis (Insight): When demand increases but supply stays the same, prices typically rise. Looking at the financial data in QBO, you notice that the business is selling more products than usual, but the cost of production remains stable. With this insight, you can advise the owner to consider raising prices to maximize revenue.
Practical Application in QBO: You track inventory levels and sales trends using QBO’s reporting tools. By analyzing these reports, you identify when supply is running low and sales are peaking. Your knowledge of microeconomic principles allows you to help the business owner make informed decisions about price adjustments, optimizing both profit and cash flow.

Here, erkenntnis allows you to go beyond just recording numbers; it helps you understand the business’s position in the market and use that understanding to guide financial decisions.

3. Macro Economics and Bookkeeping: Applying Hekima to Economic Trends

Macro economics involves larger economic forces like inflation, unemployment, and national economic growth. As a bookkeeper, you’re often on the front lines of how these larger trends affect small businesses.

Example: Inflation and Cost Management

Imagine inflation is rising, and the costs of goods and services are increasing. As a bookkeeper with hekima (wisdom), you understand the macroeconomic forces at play and how they impact your client’s business.

Hekima (Wisdom): You recognize that rising costs due to inflation can reduce profit margins. With this knowledge, you can suggest strategies like locking in prices with long-term suppliers or adjusting the business’s pricing strategy to maintain profitability.
Practical Application in QBO: Using QBO’s expense tracking tools, you can create reports that show how the business’s costs have increased over time. You also set up budget forecasts to predict how continued inflation might impact future cash flow. This allows the business to prepare for economic shifts rather than react to them too late.

In this way, hekima goes beyond bookkeeping into financial forecasting, providing long-term value to the business by anticipating macroeconomic forces.

4. Using Fingerspitzengefühl and Kutengeneza for Practical Problem-Solving in a Changing Economy

While episteme, erkenntnis, and hekima help you understand the bigger picture, Fingerspitzengefühl and kutengeneza relate to the practical, hands-on problem-solving required when you’re dealing with real-world economic issues in your bookkeeping practice.

Example: Managing Cash Flow During an Economic Downturn

During an economic downturn, businesses may struggle to maintain consistent cash flow. As a bookkeeper, your role becomes even more critical in ensuring that the business stays afloat.

Fingerspitzengefühl (Intuition): Using QBO, you quickly notice that cash flow is becoming irregular. Sales are down, but expenses remain constant. Without needing a detailed report, your experience tells you that the business will face a liquidity issue soon if changes aren’t made.
Kutengeneza (Practical Problem-Solving): You immediately take action by setting up cash flow projections in QBO. You review past financial data and adjust the budget accordingly, cutting unnecessary expenses and suggesting alternative revenue streams. You also adjust the business’s billing terms to encourage faster payments, helping to stabilize cash flow.

This combination of intuitive awareness and hands-on action allows you to respond quickly to external economic pressures. You don’t just wait for the numbers to reflect the problem—you anticipate it and fix it in real time.

5. Relating Economic Indicators to Business Performance: Connecting Erkenntnis and Hekima

Finally, let’s connect some broader macroeconomic indicators to bookkeeping and financial reporting. Economic indicators such as GDP growth, unemployment rates, and interest rates all have an impact on small businesses. A wise bookkeeper uses this information to help guide decision-making.

Example: Interest Rate Increases and Loan Management

When the central bank raises interest rates, borrowing becomes more expensive. If your client has variable-rate loans, this will affect their cash flow and profit margins.

Erkenntnis (Insight): Looking at the business’s loan agreements in QBO, you notice that an interest rate increase will significantly raise monthly payments. You can calculate the impact of the new rates on cash flow using QBO’s built-in loan tracking features.
Hekima (Wisdom): Armed with this insight, you advise the business owner to consider refinancing or paying off high-interest loans to reduce the financial strain. You also recommend setting up a separate reserve fund in QBO to cover the higher loan payments over the next year.

By combining insight and wisdom, you can help the business proactively manage external economic changes, ensuring they are prepared for the financial impact of rising interest rates.

Conclusion: Integrating Economic Knowledge and Accounting Principles in QuickBooks Online

By blending the concepts of episteme, erkenntnis, hekima, Fingerspitzengefühl, techne, and kutengeneza, we can see how bookkeeping goes far beyond basic data entry. It becomes a dynamic practice where accounting principles and economic trends shape the way businesses manage their finances. QuickBooks Online is not just a tool for recording transactions; it’s a platform that allows bookkeepers to apply economic theory, make strategic decisions, and solve real-world financial problems.

In the larger context of micro and macroeconomics, the decisions you make as a bookkeeper influence how businesses respond to market forces, manage cash flow, and adapt to economic challenges. By using the principles of episteme (understanding theory), erkenntnis (gaining insights), and hekima (applying wisdom), you empower businesses to thrive in any economic climate.