Chances are, you’re familiar with the term “bookkeeper,” but do you know what they actually do? Their job has nothing to do with organizing stacks of books or novels. Instead, they play a vital role in keeping a business on track. We will share the ins and outs of the profession and how critical their role is to ensure a company runs smoothly.
What is a bookkeeper?
A bookkeeper is a professional who specializes in maintaining accurate financial records for businesses. They are responsible for recording all financial transactions, including sales, purchases, receipts, and payments. Bookkeepers ensure financial data is organized, up-to-date, and easily accessible for analysis and reporting.
Responsibilities of a Bookkeeper
A bookkeeper's responsibilities can vary depending on the size and complexity of their business. However, some everyday tasks include:
Recording financial transactions - Bookkeepers are responsible for accurately recording all financial transactions in the company's books. This includes recording income, purchases, expenses, and payments.
Bank reconciliation - Bookkeepers reconcile the company's bank statements with the recorded transactions to ensure accuracy and identify discrepancies.
Accounts payable and receivable - Bookkeepers manage the company's accounts payable, ensuring bills and invoices are paid on time. They also handle accounts receivable, track customer payments, and follow up on outstanding invoices.
Payroll processing - Bookkeepers are often responsible for processing payroll, including calculating employee wages, deducting taxes, and ensuring compliance with labor laws.
Financial reporting - Bookkeepers maintain the general ledger and generate financial reports, such as income statements and balance sheets, to give business owners and stakeholders a clear picture of the company's economic performance.
Importance of Bookkeeping
Bookkeeping is essential for businesses for several reasons:
1. Financial Decision-Making
Accurate and up-to-date financial records give business owners the information they need to make informed decisions about their operations. A business couldn’t answer any of these questions without accurate bookkeeping.
Do we have enough cash to purchase new equipment?
Did we meet our financial targets for bonuses this year?
Do we pay wages to employees in other states that create nexus?
2. Tax Compliance
By maintaining accurate and up-to-date records, businesses can minimize the risk of errors, omissions, or inconsistencies in their tax filings. This reduces the likelihood of triggering an audit, penalties, or additional scrutiny from tax authorities. It also provides a clear audit trail in case of any inquiries or requests for supporting documentation.
3. Business Analysis
Bookkeeping provides valuable insights into a company's financial health, allowing business owners to evaluate their performance, identify trends, and plan for the future. For instance, suppose a company wants to analyze the profitability of one of its product lines. Bookkeeping records can be used to generate the income and expenses associated with that product line so you can easily calculate gains or losses.
4. Investor & Lender Confidence
When bookkeeping is adequately handled and information is correct and well organized, it creates accurate financial records that instill confidence in investors and lenders. It demonstrates that the business is well-managed and has a solid financial foundation.
Collaboration With Accountants & Business Owners
Bookkeepers often work closely with accountants and business owners to ensure compliance and effective communication of financial information. They collaborate with accountants to prepare tax returns, financial statements, and other reports required by regulatory bodies. By working closely with business owners, bookkeepers can provide timely financial information and assist in making decisions based on accurate information.
Bookkeeping vs. Accounting
While bookkeeping and accounting are closely related, they are distinct roles. Bookkeeping focuses on the accurate recording and organization of financial transactions, whereas accounting involves interpreting and analyzing financial data to provide insights and advice to businesses. Bookkeepers provide the foundation for accounting by maintaining accurate financial records, which accountants then use to generate reports and provide financial analysis.
Software & Tools
Bookkeepers use a variety of tools and software to manage financial data. QuickBooks Online is one of the most popular cloud-based accounting software programs and allows for the automation of bookkeeping tasks to increase efficiency. It also offers advanced features such as inventory management, electronic invoicing, and time tracking. In addition to QuickBooks, other cloud-based bookkeeping software options include Xero and Sage Intacct. Selection of the right software to meet your financial reporting needs is important. The use of cloud-based bookkeeping software is increasing, and the adoption of these apps is expected to continue to grow.
Many owners of small businesses find themselves moonlighting as bookkeepers, hurriedly sorting through receipts at the end of each month. Hiring a bookkeeper or outsourcing your accounting tasks can significantly improve your financial processes and alleviate stress by ensuring your finances are accurate. If you have any questions about bookkeeping, feel free to contact us. Our team is here to help.
Lauren Harris is a Client Advisory Services Manager at Lutz. She began her career in 2016. She specializes in small business consulting and outsourced accounting services in a variety of industries. In addition, she works with clients to improve their internal processes and procedures.
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