What Is Bookkeeping? All You Need To Know

what is bookkeeping
Image source: FreshBooks

Bookkeepers oversee a company’s financial accounts, ensuring they are accurate and simple to understand. Their work is critical to the successful operation of a firm, which might have many transactions in a single day, much alone a week, month, fiscal quarter, or year. If you’re a detail-oriented person who enjoys working with numbers, you should consider a career in bookkeeping. Here, all learn all you need to know about bookkeeping and how to become a bookkeeper.

What is Bookkeeping?

The process of keeping track of a company’s financial transactions is known as bookkeeping. These services involve tracking how much money enters and exits a business, such as payments from clients and payments made to vendors. Previously, bookkeepers kept track of this information in actual books; however, much of the procedure is now done on digital software. 

It is a talent that is employed in both large and small enterprises, and bookkeepers are needed in almost every business and industry. 

Types Of Bookkeeping

Bookkeepers can conduct a variety of bookkeeping tasks. Single-entry bookkeeping and double-entry bookkeeping are two of the most prevalent.

All transactions are recorded in a single row in single-entry bookkeeping. Single-entry bookkeeping is typically used to keep track of cash, taxable income, and tax-deductible spending.

All transactions are recorded twice in double-entry bookkeeping, with a debit and a credit entry. For obligations, equity, assets, expenses, and revenue, double-entry bookkeeping often use accrual accounting.

While single-entry bookkeeping is easier, double-entry bookkeeping is more thorough and less likely to result in errors.

Methods of Bookkeeping

Before you begin bookkeeping, your company must pick which system to use. Consider the volume of daily transactions and revenue generated by your company before making your selection. A complicated bookkeeping approach meant for companies may bring unneeded hassles if you own a small firm. Less robust techniques of bookkeeping, on the other hand, will not suffice for huge organisations.

With this in mind, let’s break down these strategies so you can pick the best one for your company.

Single-entry bookkeeping

Single-entry accounting is a simple system in which one entry is made in your books for each transaction. To manage incoming money and outgoing expenses, these transactions are typically recorded in a cash book. For the single-entry system, no formal accounting training is required. tiny private enterprises and sole proprietorships that do not buy or sell on credit, own little to no tangible assets, and retain tiny amounts of inventory will benefit from the single-entry technique.

Double-entry Bookkeeping

Double-entry accounting is more reliable. It is based on the idea that every transaction impacts at least two accounts and is recorded as a debit or credit. For example, if you sell anything for $10, your cash account will be deducted and your sales account will be credited. The total credits must always match the total debits under the double-entry system. When this occurs, your books are said to be “balanced.”

If your company is large, public, or buys and sells on credit, then the double-entry approach for bookkeeping makes more sense. Because it leaves less space for error, businesses frequently adopt the double-entry system. It essentially ‘double-checks’ your books because each transaction is recorded as two matching but opposing accounts.

Cash-based or accrual-based accounting?

The next stage is to decide whether to keep your books on a cash or accrual basis. This option is dependent on when your company recognizes revenue and expenses.

When you receive cash into your business, you recognise revenue. When expenses are paid for, they are recorded. In other words, whenever cash enters or exits your accounts, it is recorded in the books. This means that credit purchases or sales will not be recorded in your books until the cash trades.

Revenue is recognised when it is earned under the accrual approach. Similarly, expenses are recorded when they are incurred, frequently in conjunction with revenue. For the transaction to be documented, no actual cash must enter or exit. You can immediately mark your credit sales and purchases.

With single-entry or double-entry bookkeeping, both a cash and accrual basis can be used. However, in general, the single-entry approach serves as the foundation for cash-based bookkeeping. Transactions are documented as single entries that represent either cash coming in or cash leaving. The accrual basis is more compatible with the double-entry system.

What Does A Bookkeeper Do?

A bookkeeper’s job might vary depending on the needs of the firm. You could work for a huge corporation, a small business, or as a freelancer. Other responsibilities you may have as part of this employment include:

  • Recording transactions with accounting software, spreadsheets, and databases.
  • Gather and organise financial data, cash flow statements, bank paperwork, and profit and loss statements.
  • Create invoices and collect money from customers.
  • Keep track of debits and credits for different accounts.
  • Reconcile financial statements
  • Make a balance sheet and an income statement.
  • Examine reports for accuracy.
  • Complete the payroll.
  • Prepare and file business tax returns

How to Get a Job as a Bookkeeper

A job as a bookkeeper could be a good fit if you’re organised and enjoy working with numbers. Here’s how you can learn the abilities you’ll need to get started.

#1. Enrol in a bookkeeping course. 

A bookkeeping course can teach you the fundamentals needed to generate financial reports, organise data using tools such as Microsoft Excel, and balance books. 

Some courses, such as the Intuit Bookkeeping Professional Certificate on Coursera, can also earn you a certificate from an industry leader for your resume. 

While a degree is not necessarily required, some employers prefer people with accounting courses.

#2. Obtain a certification in bookkeeping. 

Certifications aren’t required to become a bookkeeper, but they might show employers that you have the essential training and knowledge. After a few years of work, you can complete a series of exams to receive the Certified Bookkeeper certification from the American Institute of Professional Bookkeepers.

#3. Learn the fundamentals of bookkeeping.

As you attend courses and work towards your bookkeeping certification, be sure you develop the following skills:

Technical skills:

  • Credits and debits
  • Invoicing 
  • Billing 
  • Relationships with vendors
  • Accounts receivable 
  • Accounts payable 
  • Entering data
  • Spreadsheets
  • Payroll 
  • Statements of financial position
  • Reconciliation of bank accounts
  • Accounting applications 

Workplace skills:

  • Communication in the Workplace
  • Time administration 
  • Detail-orientedness Error correction 
  • Communication, both oral and written  
  • Making a decision 
  • Thinking critically 
  • Interpersonal skills 

#4. Consider a degree. 

Though a two- or four-year degree isn’t usually required to work as a bookkeeper, certain employers may prefer candidates who have one. 

An associate or bachelor’s degree in bookkeeping or similar subjects such as finance, accounting, or business can teach you about the broader sector, increase your earning potential, and increase your employment competitiveness. A degree can also help you go from a bookkeeper to an accountant or other business-related position.

What is Bookkeeping in Accounting?

No matter how successful or large a business is, a solid bookkeeping system is always required. But what exactly is bookkeeping in the context of accounting? People frequently ask this question since the two are easily mistaken. Here’s everything you need to know about the fundamental distinctions in this situation.

What exactly is bookkeeping?

Isn’t bookkeeping merely another word for accounting? Wrong. Many people confuse the two professions; however, bookkeeping relates to the daily recording of financial transactions and activities.

It is a subset of accounting that necessitates the completion of the following tasks in order to develop a financially sound business:

  • Keeping track of financial transactions.
  • Posting debits and credits.
  • Making invoices.
  • Keeping and balancing current and historical accounts, as well as general ledgers.
  • Completing payroll

Managing a general ledger is an important aspect of bookkeeping. This is the fundamental document in which all records, costs, and receipts are kept by bookkeepers. Posting is the act of recording information on a ledger. As a result, the more sales or expenditures there are, the more frequently the ledger is updated.

Ledgers were traditionally constructed with simple equipment such as a pen and paper. However, as technology and industries have advanced, they are now built with specialist software that may be automated and customised to your company’s exact needs.

The complexity of bookkeeping software is entirely determined by the person in charge and their tastes, but it can also be influenced by the size and demand of the organisation.

A larger company that receives tens of thousands of orders per day, for example, will require a significantly more complex bookkeeping system than a little village bakery. The more transactions you need to record, the more complicated your system must be to handle them.

What exactly is Accounting?

Accounting encompasses a far broader scope than bookkeeping. Accounting encompasses the entire topic area, whereas bookkeeping is merely a subset of the system that employs features of accounting in its operations. It can include crucial components such as building bookkeeping systems, setting controls to maintain and operate the system, and assessing any data.

Accounting provides the facts your company requires to make better decisions. Accounting not only covers this, but it also examines financial reporting and performance and reports this information back to the appropriate persons. Business owners, shareholders, investors, and others rely on financial reports to stay up to speed on the company’s performance and overall success.

Accounting consists primarily of:

  • Recording expenses.
  • Creating financial statements for the entire organisation.
  • Analysing operational expenses.
  • Filling out income tax returns.
  • Assisting the business owner in comprehending the implications of financial decisions.

Accounting is primarily concerned with bringing together essential financial information. As a result, you’ll have a greater understanding of profitability and a sharp awareness of your company’s cash flow. Accountants frequently assist business owners with strategic tax planning, financial forecasting, and tax filing.

Do they Collaborate?

Although the two are distinct entities, they work well together and, when done correctly, can contribute significantly to the success and organisation of a firm. Bookkeeping is only one component of your overall accounting system. So, if your accounting is to be as effective as possible, your bookkeeping must be as well.

In order for an accountant to properly compile financial records and balance finances, the information provided by the bookkeeper must also be correct. Otherwise, figures will be incorrectly recorded, resulting in inaccurate records and updates.

A good partnership between the two is required and can assist your business really take things to the next level, particularly in terms of organisation and communication.

What is the Simplest Form Of Bookkeeping?

Single-entry bookkeeping is a simplified technique of bookkeeping in which each transaction is documented in a journal as a single entry. This is a cash-based bookkeeping approach that keeps a diary of incoming and leaving cash.

Is It Easy To Learn Bookkeeping?

You should also understand that bookkeeping is not a straightforward process that can be completed with no prior knowledge or experience. The procedure of keeping books might be difficult.

What is the Golden Rule of Bookkeeping?

Deduct all expenses and losses and credit all profits and gains. This golden accounting rule applies to nominal accounts only. It regards a company’s capital as a liability, resulting in a credit balance. As a result, when gains and income are credited, the capital will rise.

How do I Myself Bookkeeping?

Make use of a Bookkeeping App: The easiest approach to learn is to practice on your own time with a bookkeeping tool that is both simple to use and understand. There are no formal degrees or credentials. Simply search for one with beneficial features you’ll need rather than others you’ll probably never use.

What is the Hardest Part Of Being A Bookkeeper?

One of the most difficult issues that bookkeepers encounter is managing their workload. Bookkeeping, especially during tax season, may be a time-consuming and detail-oriented profession. Bookkeepers must keep detailed records of all financial transactions, invoices, bills, and receipts.

In Conclusion,

Your company’s success is driven by accurate bookkeeping. It is a fundamental accounting process without which devising strategies to improve essential areas of your organisation would be practically impossible. However, as crucial as bookkeeping is, installing the wrong system for your business can bring problems. Some businesses can still utilize manual methods such as paper diaries and journals. However, as technology advances, even smaller businesses may reap benefits from becoming digital.

  1. Instant Access Savings Account For 60s
  2. Cash Accounting: Definition, Components & Examples
  3. SWITCH ACCOUNTING: 6 Reasons to Switch accounting
  4. SMALL BUSINESS BOOKKEEPING: Tips & Best Bookkeeping Software Picks


Leave a Reply

Your email address will not be published. Required fields are marked *