What is Bookkeeping? Definition and Why It’s Important


what does bookkeeping means

Simply put, business entities rely on accurate and reliable bookkeeping for both internal and external users. With the aid of automated business software, it may be easy to integrate light bookkeeping into your existing business operations. Businesses have several options when it comes to their bookkeeping. They can hire their own in-house team, outsource this function to a third-party company, or have an approach that combines both.

Not only is solid bookkeeping required to file your tax returns each year, but it is also necessary to have the financial information you need to make sound business decisions. The bookkeeper records all customer payments in the accounting system, and then delivers the checks and cash to the bank, so that it can be deposited in the company’s checking account. As you dive deeper into the bookkeeping process, it may be tempting to blur the lines between your personal and business finances, but it’s not the best idea. By avoiding this, you’ll reduce the risk of triggering an IRS audit and will allow an accurate picture of your business finances. Not only can this help you set goals, but it can also help you identify problems in your business. With an accurate record of all transactions, you can easily discover any discrepancies between financial statements and what’s been recorded. This will allow you to quickly catch any errors that could become an issue down the road.


Is a method whereby only the financial transactions facilitated through money exchange can appear in the books. Bookkeeping is the chronological recording of business sales, revenue, purchases, and expenses. Accounting software allows you and your team to track and manage your business’s expense reports, invoices, inventory, and payroll accurately and efficiently. To choose accounting software, start by considering your budget and the extent of your business’s accounting needs. The NACPB offers credentials to bookkeepers who pass tests for small business accounting, small business financial management, bookkeeping and payroll. It also offers a payroll certification, which requires additional education. For example, QuickBooks is a low-cost bookkeeping and accounting software package that is widely used by small businesses in the U.S.

what does bookkeeping means

As mentioned above, a lot of the data entry now happens automatically, either through OCR or bank feeds. Whether you’re trying to determine the best accounting system for your business, learn how to read a cash flow statement, or create a chart of accounts, QuickBooks can guide you down the right path. Without bookkeeping, accountants would be unable to successfully provide business owners with the insight they need to make informed financial decisions. Unlike accounting, bookkeeping zeroes in on the administrative side of a business’s financial past and present.

Definition of bookkeeper

Bookkeeping is a direct record of all purchases and sales your business conducts, while accounting is a subjective look at what that data means for your business. Making any adjusting journal entries for prepaid revenue or expenses, depreciation or other unusual transactions. The listing of categories you use to classify your business’s transactions. Think of the chart of accounts as a sort of filing system for your business’s transactions. Liabilities include credit card balances, amounts due to vendors , loan balances and tax liabilities that have not yet been paid. Good bookkeeping is necessary to have the financial information you need to make sound business decisions. QuickBooks Live bookkeeper can help ensure that your business’s books close every month, and you’re primed for tax season.

  • Bookkeeping is essentially related to accounting, and there are a variety of ways to make bookkeeping tasks more effective and less prone to error.
  • These are the non-recurring items that appear in the company’s income statement, along with the regular business expenses.
  • There are no formal educational requirements to become a bookkeeper, but they must be knowledgeable about financial topics and accounting terms and strive for accuracy.
  • One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent.
  • All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
  • QuickBooks is an excellent option for novice and seasoned digital bookkeepers alike.

Coming from the background of accounting, he immediately straightened out the company’s bookkeeping and implemented a new accounting system. Примеры из литературы A thorough and comprehensive system of bookkeeping and accounting was installed. The bookkeeper collects timesheet information from employees and pay rate information from the human resources department, and uses these inputs to prepare a periodic payroll. The bookkeeper also prepares paychecks for employees, and remits payroll taxes to the government.

Double-entry bookkeeping

Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you if you get audited by the IRS. A bookkeeper with professional certification shows they are committed to the trade, possess the skills and expertise required, and are willing to continue learning new methods and techniques. Bookkeepers aren’t required to be certified to handle the books for their customers or employer, but licensing is available. Both the American Institute of Professional Bookkeepers and the National Association of Certified Public Bookkeepers offer accreditation and licensing to bookkeepers. There are no formal educational requirements to become a bookkeeper, but they must be knowledgeable about financial topics and accounting terms and strive for accuracy.

It is the method of documenting the daily financial transactions of an organization. Additionally, bookkeepers reconcile bank records and report employers’ financial information in an organized format. Accounting PeriodsAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company. Double-entry bookkeeping uses a two-column journal entry accounting system. On the left side of the ledger, you’ll have assets and expenses.

What is BPO (Business Process Outsourcing)?

Debits represent incoming money; credits represent outgoing funds. If you get money, such as through a sale, you’ll record a debit. When you record an outgoing transaction, such as a bill payment, you’re recording a credit. In bookkeeping, every transaction is either a debit or a credit. Maintaining your small business’ books is just about the most important part of being a business owner.

  • Similarly, expenses are recorded when they are incurred, usually along with corresponding revenues.
  • The error must be located and rectified, and the totals of the debit column and the credit column recalculated to check for agreement before any further processing can take place.
  • Bookkeepers may also share some jobs with accountants, such as the preparation of annual financial reports and tax returns.
  • We provide third-party links as a convenience and for informational purposes only.
  • A bookkeeper’s job is to maintain complete records of all money that has come into and gone out of the business.
  • This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research.
  • The more you can automate, the less chance there is of user error.

Credit the inventory account to remove the value of the sold item from inventory. Retained Earnings, to track profits that are reinvested in the company for growth. Owners’ Equity, which is the amount of money or equity owed to an owner. Payroll Expenses, which tracks salaries, benefits, and taxes attributable to employees. Purchases, to track raw materials or finished goods purchased for your business. You don’t need any special training to be a bookkeeper—you don’t even need a bachelor’s degree. My mom worked in Paterson, New Jersey, as a bookkeeper for a factory.


The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. But while these systems may be seen as “real” bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.

  • Most bookkeeping these days happens on computers rather than in actual books.
  • Identifying events via simple integer ‘time’ values has many advantages for both the user and the debugger’s internal bookkeeping needs.
  • With proper bookkeeping, companies are able to track all information on its books to make key operating, investing, and financing decisions.
  • Before you begin bookkeeping, your business must decide what method you are going to follow.
  • However, before an organization can implement effective and proper bookkeeping strategies, it might consider several key things.
  • Therefore, the management decided not to provide goods on credit to Mr. B in the future.
  • Accounting has a much more broad definition than simply recording transactions in an accounting system.

Bookkeeping includes the recording, storing and retrieving of financial transactions for a business, nonprofit organization, individual, etc. Data entry involves entering your business’s transactions into your bookkeeping system.

Learn More About bookkeeper

Today’s bookkeeping software allows you to snap a photo of or scan in your source documents, and then OCR technology will extract the pertinent information and do much of the data entry for you. This means you can maintain source document verification while still taking advantage of the time-saving bookkeeping for small business technology of your accounting software. The process of recording financial transactions and maintaining the financial records to support a com-pany’s financial statements. Bookkeeping is only one small part of accounting, which is the overall examination of a company’s financial results.

what does bookkeeping means

We believe that better banking products can make the whole financial system more inclusive. Accountants on the other hand, go through rigorous training and standardized exams to become certified public accountants. Both functions, bookkeeping and accounting, are vital for every commercial enterprise. Whether you hire an accountant, a bookkeeper, or both, ensure they’re qualified by asking for client references, checking for certifications, or performing screening tests.

Accounts Payable, to track upcoming bills and payments your business owes. Sales, to track all incoming revenue from point-of-sale purchase of products or services. This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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