What is bookkeeping, and who is a bookkeeper?
As per the bookkeeping definition, bookkeeping refers to the practice of recording and tracking the financial transactions of a business entity on a day‐to‐day basis (keep the “books”). Bookkeeper is the title given to a person who enters, categorizes, reviews, and reconciles transactions in a company’s accounting system.
Why does a company need a bookkeeper?
Generally, companies provide a service or product for profit. But how do business owners know how much is being paid for employees, if the service or product is profitable, or if there is enough cash to pay for expenses currently owed? Answers to these and other questions get answered by bookkeeping. Bookkeeping also serves as records for tax filing requirements.
What kind of transactions do bookkeepers record?
A transaction is anything that impacts the company in a monetary (relating to money) way. Hiring an employee is not considered a transaction, but paying an employee is. The more common transactions that need to be booked are:
- The purchase of supplies with cash
- The purchase of merchandise on credit
- The sale of merchandise on credit
- Rent for the business office
- Salaries and wages for employees
- Buying equipment for the office
- Borrowing money from a bank
How are the above and other transactions recorded?
Bookkeeping has a long history of manual pencil‐paper recordkeeping. Bookkeepers used paper journals and general ledger accounts with subsidiary ledgers, rewrote amounts to trial balances, and rolled them into financial reports. It was an even cycle with debits and credits, but manual with duplicate labor that gave rise to many errors along the way. Fortunately, with the speedy computers we have today and the bookkeeping software available, many of the bookkeeping tasks have been eliminated or happen simultaneously. Today, bookkeepers record transactions in bookkeeping software (most commonly QuickBooks).
How did bookkeeping software change the way we do bookkeeping today?
Bookkeeping software helps speed up the bookkeeping process, as mentioned before. For example, preparing a sales invoice will automatically update the relevant general ledger accounts (sales, accounts receivable, inventory, cost of goods sold), update the customer’s detailed information, and store the information for the financial statements and other reports. However, what has not changed is the backbone to bookkeeping data entry, which are debits and credits. The software is written so that every transaction must have the debit amounts equal to the credit amounts. The electronic accuracy also eliminates the errors that occurred when numbers were manually written, rewritten, and calculated. As a result, the debits will always equal the credits, and the trial balance will always be in sync.
What is the most popular bookkeeping software?
QuickBooks is the leader in bookkeeping software for small businesses. QuickBooks has a cloud‐based online version (a.k.a. QBO) and a desktop version (a.k.a. QBD). Both have pros and cons, and each business uses the version that best matches their preferences.
More about QuickBooks.
QuickBooks is an accounting/bookkeeping software package developed and marketed by Intuit. Intuit has a program for resellers to sell the software to third‐party companies, and for ProAdvisors, people who are trained and pass certification for knowing the software and can train and guide others on QuickBooks use. QuickBooks also has many add‐on apps that other companies develop to work with QuickBooks to give it more functionality.