What is bookkeeping?

Bookkeeping is the process of recording and tracking the financial transactions of your business. Bookkeeping is an integral part of your company’s accounting and can be done as frequently as daily or as infrequently as annually (not recommended 👎). Accurate bookkeeping is necessary to track the financial performance of your business, file your tax returns each year and to make sound operating, investing and financing decisions. Reliable, accurate bookkeeping is also crucial to potential external stakeholders like investors, financial institutions and the government.‍

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Books?..like physical books?

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Historically, bookkeeping was done manually using actual “books” called journals and ledgers. Because bookkeeping is based on double-entry accounting, transactions had to be recorded in two separate places (the journal and the ledger). The “books” were then balanced each month via a trial balance before financial statements could be prepared. Hence the term “bookkeeping” was born and is still used today even though accounting software is more common than physical books.

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What does a bookkeeper do?

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A bookkeeper is primarily responsible for the day-to-day recordkeeping and data management for your business. Bookkeepers make sure the information in the books (journals and ledgers) are accurate and that the books are reconciled each period. Without books that are free from material misstatement, CPAs and accounting professionals are unable to successfully provide business owners with the insights they need to make informed financial and investing decisions.

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Bookkeeper responsibilities

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• Data entry: Recording financial transactions and balancing your books.
• Bank reconciliation: Cross-referencing your books against your bank statements and other sources to confirm accuracy.
• Financial reporting: Summarizing your company's financial information and performance.
• Payroll: Calculating and processing pay and deductions for your team.
• Customer invoicing: Invoicing customers that owe you money.
• Bill pay: Paying bills and vendors / suppliers that you owe money to.

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Why is bookkeeping important?

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Timely, accurate bookkeeping provides your business with a reliable measure of financial performance. It also provides information to make strategic decisions and a benchmark for the company’s revenue and income goals.

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1. Easy-to-access, detailed transaction data

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By recording and tracking all of your financial transactions, you will have instant access to any financial information you may need. A bookkeeper can produce accurate financial statements and reports that give you insight into how the business is growing revenue and spending it’s cash. The three key financial statements that bookkeepers provide are the income statement, balance sheet and statement of cash flows.‍

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2. Informed business decisions

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With the financial statements and reports created from your bookkeeping data, you will have the information to measure key metrics for your business and know exactly where your money is going. By having access to this data, you can make strategic plans and develop realistic objectives for your business. Not only will these financial statements help you set goals, but they will also help you identify problems in your business.

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3. Stress-free tax time

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Staying up to date with your bookkeeping throughout the year and knowing your books are in order will help alleviate the stress that comes when it is time to file your taxes.

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Should you do your own bookkeeping?

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While there isn’t a single best answer that applies to all businesses, there are factors we believe you should consider in coming to a decision.

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1. Do you have the time?

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As a business owner you likely already have a lot on your plate and bookkeeping can be tedious and time-consuming. As a result, continuing to do your own bookkeeping may become overwhelming and lead to inconsistent, unreliable financial records. On the other hand, if you do have the time to dedicate to keeping your financials updated regularly then you should consider doing your bookkeeping until it becomes too burdensome to handle. Additionally, if the volume of transactions each month is minimal or you are interested in developing your accounting and finance skills then doing your own bookkeeping is a great way to learn.

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If you are like most business owners though, it is likely you did not start a business to practice professional-level bookkeeping (but we did 😊). Outsourcing the work to an experienced bookkeeper can save you time and allow you to focus on building your business.

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2. Do you have the expertise?

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If you do not have accounting and bookkeeping experience then you may not have the expertise you need to handle the responsibilities of a bookkeeper. This could in turn, cause you stress and potentially waste your time. If you are unfamiliar with accounting and finance then doing your own bookkeeping may be challenging. Conversely, if you have accounting, tax and finance knowledge beyond the bookkeeping basics, you may be able to get the job done.

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Bookkeeping options for your business

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Depending on the stage of your business, you may not want to hire a full-time professional bookkeeper. You can get bookkeeping software and continue to do it yourself or you can take bookkeeping off your never-ending to-do list with the help of an online accounting team like Taxceed.

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Taxceed is a CPA firm based in Washington, D.C. Our mission is to help entreprenuers and business owners achieve long-term success. The firm provides online bookkeeping, accounting, tax services and expert financial advice to businesses. Learn how we can help.

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