What Is Bookkeeping? Everything You Need To Know (2024)

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Bookkeeping is the practice of organizing, classifying and maintaining a business’s financial records. It involves recording transactions and storing financial documentation to manage the overall financial health of an organization. Most businesses use an electronic method for their bookkeeping, whether it’s a simple spreadsheet or more advanced, specialized software.

Why Is Bookkeeping Important?

When an effective bookkeeping system is in place, businesses have the knowledge and information that allows them to make the best financial decisions. Tasks, such as establishing a budget, planning for the next fiscal year and preparing for tax time, are easier when financial records are accurate.

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Bookkeeping vs. Accounting

While they seem similar at first glance, bookkeeping and accounting are two very different mediums. Bookkeeping serves as more of a preliminary function through the straightforward recording and organizing of financial information. Accounting takes that information and expands on it through analyzing and interpreting the data.

While any competent employee can handle bookkeeping, accounting is typically handled by a licensed professional. It also includes more advanced tasks such as the preparation of yearly statements, required quarterly reporting and tax materials.

Components of Bookkeeping

Bookkeeping tasks provide the records necessary to understand a business’s finances as well as recognize any monetary issues that may need to be addressed. Proper planning and scheduling is key since staying on top of records on a weekly or monthly basis will provide a clear overview of an organization’s financial health.

For every type of business, bookkeeping includes several components and steps, including:

  • Documenting every financial transaction (payments and expenses)
  • Recording all debits and credits
  • Sending invoices and processing payments
  • Preparing financial statements (balance sheet, income and cash flow)
  • Maintaining and balancing a general ledger
  • Conducting daily banking activities
  • Completing payroll functions

How To Become a Bookkeeper

Bookkeepers work with a variety of clients and are responsible for handling the daily financial activities associated with a client’s business. They oversee and record all incoming and outgoing transactions, create budgets, balance ledgers and may even manage payroll. Becoming a bookkeeper starts with a strong understanding of both finances and organization as well as a love of numbers.

While there are a myriad of courses available for bookkeeper education and training, a good deal of bookkeepers are self-taught since there are no required certifications needed to work as one. The skills needed to become a successful bookkeeper are often acquired through working in a career in the finance industry or even by balancing your personal budgets. Many bookkeepers hone and develop their expertise over time while others opt to complete seminars, read books or take online classes.

Bookkeeping for Your Small Business

Keeping up with the records in your small business might be a task you are willing and able to tackle yourself. The system you choose to use doesn’t need to be complicated and the ledgers should be straightforward, especially if you have just a few or no employees. The most important parts of doing your own bookkeeping are staying organized and keeping track of the details.

Start by deciding on the system you want to use, whether it’s an online program, paid software or a spreadsheet. Next, set aside a dedicated time either weekly or biweekly to review your bookkeeping, reconcile transactions and complete necessary data entry. Finally, you’ll want to decide how all receipts and documents will be stored. You can either keep hard copies or opt for electronic files by scanning paperwork.

Start Your Own Bookkeeping Business

If you find that you have a talent for and enjoy the process, you may consider starting your own bookkeeping business providing this service to others. There’s always a demand for experienced, efficient bookkeepers in nearly every industry. Companies often outsource the organization of their finances to independent professionals, then hire accountants for more complex issues and tax filing.

Before launching your new bookkeeping business, take the time to familiarize yourself with different accounting software, have a strong understanding of profit and loss, know how to run financial reports and decide what type of clients you are interested in working with.

When first starting out, market yourself as a professional who is well-versed in managing accounts, reconciling transactions, providing financial overviews and balancing budgets. Ask for testimonials from people who have utilized your services in the past and spread the word about your offerings through a website or social media.

How To Find a Bookkeeper

If you’re ready to take bookkeeping off your plate and delegate this task to someone else, it can be hard to know where to look. Start by reaching out to other business owners for recommendations, searching online for providers and checking out reviews on Google or Yelp. If you don’t feel comfortable with a freelancer, there are many firms that offer bookkeeping services as well.

In this day and age, the providers you contract with don’t need to be in the same city, state or even time zone as you. Remote work has expanded across nearly every field, including bookkeeping. If you find someone who is a good fit for your business needs, it doesn’t matter if they are in California while you work from New York. You’ll want to create a contract that outlines details, such as deadlines, rates and expectations so that everyone is on the same page.

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1

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Starting at $49 per month

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2

1-800Accountant

Starting Price

$139 per month

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On 1-800Accountant's Website

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QuickBooks

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$15 per month (for the first 3-months, then $30 per month)

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Self-Serv: $39/month; Full-service: $75/month; Premium: $299/month

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Expert help, invoicing, income and expense management

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H&R Block

What Is Bookkeeping? Everything You Need To Know (15)

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Best Bookkeeping Services

Online bookkeeping services might be the exact solution you need to save both time and money. The service you decide to use depends on the needs of your business and may include extra features such as payroll or tax documents.

There are dozens and dozens of bookkeeping options available and the choices may seem overwhelming. We’ve analyzed and rated the best online bookkeeping services to help you make the best decision when choosing the right one.

Bottom Line

Since bookkeeping is a more straightforward process than accounting, it is something that many people can (and do) opt to take care of themselves. As your business grows and you begin making higher profits, hiring staff and handling more transactions, however, it may make sense to outsource the details of bookkeeping to someone else.

If you enjoy organization and numbers and have experience with bookkeeping, starting your own business offering this service might be a smart career choice.

Frequently Asked Questions (FAQs)

What is bookkeeping?

Bookkeeping is the ongoing recording and organization of the daily financial transactions of a business and is part of a business’s overall accounting processes.

Are bookkeeping and accounting different?

Bookkeeping focuses on recording and organizing financial data, including tasks such as invoicing, billing, payroll and reconciling transactions. Accounting is the interpretation and presentation of that financial data, including aspects such as tax returns, auditing and analyzing performance.

What skills does a bookkeeper need?

Unlike accounting, bookkeeping does not require any certifications. Individuals who are successful bookkeeping professionals are highly organized, can balance ledgers accurately, have an eye for detail and are excellent communicators.

Can I do my own bookkeeping for my business?

A small business can likely do all its own bookkeeping using accounting software. Many of the operations are automated in the software, making it easy to get accurate debits and credits entered.

What Is Bookkeeping? Everything You Need To Know (2024)
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