Bookkeeping is the practice of monitoring and recording transactions in a business. This involves recording the movement of funds like customer and vendor payments. Before, bookkeepers relied on physical books to perform their functions. But nowadays, they utilise specialised software to streamline the process.
Both small businesses and large corporations can benefit greatly from comprehensive bookkeeping. This makes it a fundamental need across a wide variety of industries.
Types Of Bookkeeping
There are various forms of bookkeeping approaches. But, the two most common are single-entry bookkeeping and double-entry bookkeeping. Here’s a brief overview of them:
This refers to the act of recording transactions in a single row. Single-entry bookkeeping is usually most suitable for keeping track of tax deductibles. It’s also useful for tracking taxable income and general cash flow.
With double-entry bookkeeping, all transactions are recorded twice, usually in the form of a credit and debit entry.
In short, single-entry bookkeeping is easier than double-entry bookkeeping. But, the latter is more thorough and less likely to result in errors.
What Does A Bookkeeper Do Everyday?
Now, to answer the question of what does a bookkeeper do. For the large part, the role involves a lot of data entry and receipt management. They have to document every transaction in the general ledger. This may sound very complex but it often simply means inputting the right data into accounting software.
But, bookkeeping tasks extend beyond inputting data. They also involve performing in-depth data analyses and having a strong understanding of legal principles. Bookkeepers have a crucial role in ensuring records are organised and compliant. This is useful in preparation for audits, as well as in drafting financial reports and tax returns.
Here are the four financial statements that bookkeepers are tasked with preparing:
- Balance sheet – A balance sheet provides a quick overview of a business’s finances at a certain time.
- Cash flow statement – Cash flow statements are a record of cash moving in and out of a business.
- Income statement – Income statements show revenue and expenses over a specific timeframe. They’re also referred to as profit and loss statements.
- Statement of changes in equity – These statements are designed to tell you how your shares have changed in a reporting period. Shares are inclusive of capital, reserves, and retained earnings.
Other responsibilities include managing accounts payable and accounts receivable – as well as bank reconciliations and payroll processing. Most business owners who have made an attempt to manage their own finances know all too well how difficult the tasks of a bookkeeper can be.
What Skills Does A Bookkeeper Need?
Bookkeepers generally don’t need the same level of training as accountants, but there are still many skills they need to bring to the table:
Bookkeepers need a solid understanding of accounting principles and basic financial concepts. Financial literacy is the basis for accurate bookkeeping and financial analysis.
Bookkeepers need to be able to look at and interpret financial data. This also means being able to identify trends and provide meaningful observations.
Attention to detail
Having to deal with large datasets means having to filter out all the important details. Bookkeepers need to pay careful attention when recording and organising information.
Modern bookkeeping requires the use of accounting software, as it’s generally faster and more accurate. Bookkeepers need to be familiar with these tools and able to utilise them effectively.
Is A Bookkeeper The Same As An Accountant?
Some often call bookkeepers accounting clerks, but a bookkeeper is not the same as an accountant. Bookkeepers are good at handling certain tasks, but, accountants provide specialised expertise. Bookkeeping tasks usually focus on daily transactions. Accountants use the information gathered to generate financial statements and reports.
Additionally, bookkeeping is mainly transactional, while accounting involves subjective analyses and skilled interpretation. Accountants can guide business owners on important decisions like how to maximise their tax returns.
With a bookkeeper, you’ll be able to get current snapshots of where your business is at financially. Accountants use that same financial data to give a broader view of where a business is headed.
Lastly, unlike bookkeepers, becoming an accountant requires undergoing rigorous training. It also means having to complete standardised exams to become a certified public accountant. Becoming a bookkeeper doesn’t require a bachelor’s degree.
The Benefits Of Bookkeeping
Hiring a good bookkeeper can benefit your business in many ways. Here are a few:
Bookkeepers can provide valuable insights into your financial transactions. This often enables businesses to make insight-driven budgeting decisions. You’ll know exactly where money is going to improve future allocation.
Stress-free tax filing
Tax preparation can be incredibly stressful if you’re not a financial professional. Bookkeepers take the stress out of this process by keeping records well-maintained. This is particularly helpful for avoiding last-minute rushes.
Organisations such as the HMRC need business owners to keep comprehensive transactional records. This is to ensure that they’re compliant with industry regulations. Bookkeepers minimise the risk of non-compliance. This can then help businesses avoid needless penalties or fines.
Identifying seasonal trends
Because they deeply analyse business finances, bookkeepers can be useful in identifying trends. The patterns that they identify can help businesses make informed decisions. This is helpful in areas such as inventory, staffing, and marketing strategy
In today’s business landscape, the skills that bookkeepers offer are indispensable. They offer meticulous attention to financial details and expert use of tools to maintain accurate records.
By aiding financial transparency and decision-making, bookkeepers make significant contributions to business growth.
So, whether you’re an individual, small business, or large company, forget about managing the finances of your own business. Securing the services of an accounting professional is key to financial health and prosperity.
Do you need an accountant if you have a bookkeeper?
Although professional bookkeepers and accountants both deal with financial transactions, their responsibilities differ.
Bookkeepers are needed for daily financial management, largely to ensure financial records are up to date. But, depending on how complex your business operations are, having the expertise of an accountant may be helpful.
Accountants can help provide a deeper understanding of complex financial concepts. They can also help guide high-level decision-making.
What software do Bookkeepers use?
What are some common mistakes that bookkeepers should avoid?
If you have recently employed or are looking to use a bookkeeper, then here are some common mistakes to look out for:
Data entry errors – When managing financial records, one wrong entry can cause serious complications. Always double-check data.
Failure to reconcile financial statements – Not reconciling cash flow statements creates discrepancies. It can also result in inaccurate financial information.
Lack of backups – Without proper safety or backups data loss is a possibility. Regularly back up data and establish strong security protocols.
Mixing personal and business finances – Separate your personal and business financial records. It helps with avoiding needless confusion and inaccurate records.
Lack of communication – Bookkeepers should always maintain consistent communication with cross-functional departments. Poor communication can easily result in misunderstandings and errors.
Are there any industry standards bookkeepers need to follow?
Yes, much like accountants, bookkeepers have a set of standards that they need to follow.
Those providing a bookkeeping service or bookkeeping by way of business, have to be monitored by a supervisory authority such as the ICB.
How can bookkeepers help small business owners?
Bookkeepers can help a small business owner the same way they might be able to help a large business owner.
They can draft financial reports, handle cash flow, and manage accounts receivable and payable. More importantly, bookkeepers can help small businesses save time and scale their operations.