May 20, 2024

What is bookkeeping? Everything you need to know.

Bookkeeping is an integral part of every business. Any company that doesn’t keep accurate financial books is likely headed for significant problems. This article will explain bookkeeping and what you need to know about it.

What Is Bookkeeping?

It is the process of keeping accurate records of a company’s financial transactions. It involves categorizing every transaction as an income or expense. Before the digital age, bookkeeping was done manually on physical notebooks. However, the process has largely been digitized, with a lot of software tools available to choose from.

Types Of Bookkeeping

The two most common types are single-entry and double-entry.

  • Single-entry involves recording each transaction with a single entry into the journal. It is a straightforward method that works well for small businesses with few assets.
  • Double-entry involves recording each transaction twice; a debit and credit entry. This method is more complex, as every entry in one record requires an opposite entry in a different record. This method is suitable for large businesses dealing with significant assets and liabilities.

Any bookkeeper can record transactions with a cash-based or accrual method.

  • Cash-based method: Transactions are recorded only when money enters or goes out of corporate accounts. Cash must change hands before the bookkeeper records them.
  • Accrual method: Transactions are recorded immediately an invoice is generated, regardless of when money changes hands. 

The cash-based format works best with single-entry, while the accrual format works best with double-entry.

What Does A Bookkeeper Do?

Their tasks include;

  • Recording financial transactions manually or using a software tool.
  • Generating invoices and collecting payments when due.
  • Reconciling financial statements to ensure there aren’t discrepancies between the bookkeeping and bank records.
  • Creating balance sheets and income/loss statements at specific intervals, e.g., monthly, quarterly, and annually.
  • Reviewing payroll to ensure employees are compensated accurately.
  • Preparing tax returns at specific intervals.
  • Creating budgets and forecasts for the company.
  • Liaisoning with accountants about financials and tax inquiries.

How To Become A Bookkeeper

It is a good role to choose if you enjoy working with numbers. Here are the steps to take:

  1. Take a Professional Course

You need a lot of knowledge to become a professional bookkeeper. You can take a course to get this knowledge, and there are many options to choose from. The type of knowledge you would get includes how to

  • Balance books
  • Use spreadsheets and financial software
  • Reconcile the books with bank statements
  • Prepare professional invoices
  • Create budgets and forecasts
  1. Get a Certification

Anybody can claim to have acquired the preequisite knowledge, but you’ll need a certificate to prove it. The certification signals to employers that you are trained to be a bookkeeper and can fulfill the required tasks. There are many such certifications, e.g., the Intuit Bookkeeping Professional Certificate. Some cost money to get, and you must pass an exam before getting the certification.

Also, consider getting a certification from a bookkeeper association in your country, e.g., the American Institute of Professional Bookkeepers.

  1. Build Workplace Skills

It’s not enough to know how to balance the books accurately. You must build communication skills to work in any organization. You must know how to communicate orally or in written form and liaison with others to achieve your goals. You must also have critical thinking and problem-solving skills in case financial misstatements occur.

Conclusion

We have provided a detailed answer to the question, “What is bookkeeping?” You should now have a clear understanding of what the role entails and the steps to take to become a successful bookkeeper. 

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