What is Bookkeeping?
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Have you ever pondered these questions:- What is bookkeeping? This page has the answers. If you are more interested in the principles of bookkeeping i.e. the system that enables the bookkeeping steps to work then go to double entry bookkeeping. |
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Bookkeeping can be broken down to three main steps:
- Organizing numbers into categories:-
What numbers am I talking about? The numbers are the values of business transactions. For instance, if I sell a hat for $10 cash, the business transaction is the sale of the hat, and the value is the price I sold it for. The sale has to be categorized in the bookkeeping system, and in this case it will be ‘Income’. Go to Chart of Accounts to learn more about these categories. - Ensuring the numbers all balance:-
What needs to balance? Here are a few examples. The cash book needs to balance to the bank statement. In double entry bookkeeping the debits and credits need to balance. The sales and purchase invoices need to add up to the totals on the month end activity statements. The cash in the petty cash box needs to equal the balance in the petty cash book. And so on.... - Producing Reports:-
Once all the numbers balance, accurate and useful reports can be created. The tax accountant can calculate how much tax the business owes. The bank manager can see if it really is worthwhile lending the business more money...
Who Does it Benefit?
Bookkeeping benefits the business owner because it:-
- shows how well the business is performing; if it’s making or losing money
- allows the owner to make important decisions about how to grow the business
- provides employment to bookkeepers and accountants
Is it Easy to Do?
It sure is with a bit of patience, practice and consistency. Stick with the processes laid out in this guide and you can’t go wrong. Things only go off track when shortcuts are taken, or when dis-organization reigns or when laziness sets in.
Set yourself regular times to stay on top of the bookkeeping, and the filing, and the debt collecting... so things don’t get ‘out of control’.
If you’re a business owner and you really struggle with this side of the business to the point of jeopardizing it, outsource to a bookkeeping provider. Focus on the bits you like doing - those which got you starting a business in the first place.
Some people are just not cut out for sitting behind a desk and managing paperwork. If you know you can’t do it then make the right decision from the beginning and get help. Trying to save money can cost the business in the end with poor records and inaccurate reports.
Who Would Do a Job Like That?
Besides small business owners doing their own bookkeeping, there are thousands of people who choose bookkeeping as a career. Organizing numbers and paperwork, and utilizing their math skills is very appealing to a broad range of people. It is also also a stepping stone to more advanced accounting practices.
There will always be a huge need for this type of work. Every single business has to have a bookkeeping system and somebody to administer it. As long as business is alive and well on planet earth bookkeeping will be around.
There is a misconception that bookkeeping is boring and full of staid, dull men and women, but think about it... even Hollywood and famous people rely on bookkeepers to look after their sacks of cash. “Yes, Mr Pitt, I can have your expense report to you within the hour”. “Yes, Ms Portman, I have got that receipt for your flight to London...”. Nothing boring about that!
Ok, so not everyone will work with celebrities, but only you can make the decision for yourself about whether or not bookkeeping will bore you.
Summary of What is Bookkeeping
What is bookkeeping? It is a necessity to all businesses. It’s a respectable career choice for men and women.
There are opportunities for moving up to managerial positions such as Debtors Manager, Office Manager and so on.
You could open your own bookkeeping business and work from home.
You could do further studies and work towards becoming a Chartered Practicing Accountant, and open up your own Accounting practice.
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