What is Bookkeeping in Accounting, and Why Do You Need It?

Michael Pignatelli
Jul 29, 2021

People think that bookkeeping is just a fancy word for accounting, but these two have tasks and responsibilities. The consistent recording, storage, and retrieval of financial transactions for a firm are referred to as bookkeeping, while accounting is concerned with reporting essential financial data for making strategic company choices.

Keeping track of a general ledger is a crucial part of bookkeeping. This is the basic document in which bookkeepers keep all records, costs, and receipts. As a result, the more sales or expenditures there are, the more often the ledger is updated.

What are Bookkeeping and Payroll Services?

The most common question regarding the fundamentals of bookkeeping is "What is its purpose?". You could be overwhelmed with a plethora of other responsibilities if you're new to the industry. Refreshing your bookkeeping abilities may appear to be a chore best kept for another day. However, there are several advantages to maintaining precise paperwork and tracking your expenditure and income.

Bookkeeping has two major goals:

  • Using best practices to correctly document all financial transactions resulting from business activity.
  • Determining and making sense of the financial results of company operations.

Bookkeepers generally require a comprehensive inventory of all transactions and associated costs to effectively document all business-related financial activities. They may categorize transactions as a good or service, a wage, a tax, or any other broad commercial process.

When it comes time to audit all reported financial activities, bookkeepers provide an accurate picture of how the firm has allocated its money. The two most essential reports that bookkeepers provide are the balance sheet and income statement. Both reports should be simple to read so that all readers can understand how well the firm is performing.

Payroll Services

Health care contribution, overtime, bonuses, and any payroll service is an art in itself and is one of the fundamental drivers of a business. It’s also a major role that bookkeepers can fill, as well as some HR functions. For most small businesses, this hits lots of birds with just one stone. Payroll services is the process of documenting and managing employee remuneration and taxation. This data includes salaries, gross wages, bonuses, commissions, fringe benefits, holiday pay, and other paid time off. Payroll accounting also includes withholdings for health insurance premiums, income garnishment, Social Security taxes, contributions to savings plans, Medicare taxes, and state and federal taxes.

Types of Bookkeeping

Single entry and double entry bookkeeping are the two predominant types used today. Every business has their unique needs, thus it’s important to know what bookkeeping type will suit their system best. Here are the two main types of bookkeeping:

Single Entry

This is a straightforward bookkeeping solution for extremely tiny start-up enterprises or single proprietors that use printed papers or Excel spreadsheets.

A cash book (which represents the bank account activity of receipts and payments) is the very minimum that a firm must have, and many small businesses may get by with just a cashbook to perform their bookkeeping.

Double Entry

The double-entry structure is more difficult to understand. However, it is suitable for businesses with accumulated expenses—that is, expenditures recorded into the bookkeeping system on the purchase date rather than the payment date.

Accounting software systems such as QuickBooks use double-entry bookkeeping. In this type of accounting, bookkeepers record transactions as expenses or revenue. The transaction is then classified on the relevant account using a second entry.

What is Included in Bookkeeping Services?

Bookkeepers prepare four important financial statements:

  • An income statement depicting your revenue and expenses over a specific period.
  • A balance sheet that shows your financial status at a particular period.
  • The cash flow statement which monitors the cash that enters and exits your business.
  • A statement of changes in equity that demonstrates how your portion of capital, reserves, and retained earnings have evolved throughout a reporting period.

Bookkeepers can also help your company run seamlessly by doing the following:

  • Ensuring you get paid on time by managing your accounts payable and receivable.
  • Collecting and remitting sales tax to the government.
  • Keeping a close eye on your debt levels and making timely payments on any obligation due.
  • Keeping track of incoming cash and depositing it at the bank.
  • Handling monthly bank reconciliations.
  • Preparing your CPA with precise financial accounts for tax season.
  • Keeping track of your annual budget.
  • Reporting problems or deviations when they arise. 
  • Payroll processing.

Although bookkeepers cannot do tax planning nor manage tax returns, they can do a few tax preparations like filing the necessary documents for important tax deadlines or ensuring the records are accurate, which lessens the workload of accountants and helps business owners avoid hefty fines. In addition, you can save more money as bookkeepers are less costly than CPAs.

Final Thoughts

Bookkeeping is all about keeping an accurate record of a business's financial operations. At the very least, it assists the self-employed individual in tracking their revenue and spending to submit tax returns and satisfy their tax responsibilities. 

Whether you're just starting out or even a tiny company owner with a big goal, you'll need to learn some fundamental bookkeeping skills. You can DIY or hire a professional: how you handle and document your finances is totally up to you. Whichever decision you make, remember that important records of corporate operations must be kept.

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New York, NY 10003
United States
7676 Woodbine Ave #2
Markham, ON L3R 2N2
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