What is bookkeeping?
When you think of bookkeeping, does the image of a person behind a desk going deep into the numbers with a calculator and receipts ring a bell? Well, modern-day bookkeeping doesn’t look like that. We’ll walk you through the answer to “what is bookkeeping?” – and why it matters for a small business owner.
Bookkeeping is an important concept to understand because it’s the mechanism for painting a clear picture of how you earn and spend money as a business. Read on for insight.
Bookkeeping definition and purpose
Bookkeeping is the financial underpinning of a business. It involves the meticulous record-keeping of all small business transactions. Furthermore, it helps you gauge the financial vitality of your business by tracking expenses and revenue.
What are bookkeeping duties?
Bookkeeping duties include documenting:
- Asset records
- Bank transactions
- Credit purchases
- Financial transaction reports
- Payroll records
- Purchase orders
- Sales invoices
You can track your finances by hand, in a spreadsheet, or through bookkeeping software. There are a few bookkeeping methods – namely single- and double-entry bookkeeping.
- Single-entry bookkeeping involves making one entry per transaction of incoming or outgoing funds. Single-entry bookkeeping tracks cash transactions, taxable income, and tax-deductible expenses.
- Double-entry bookkeeping is when you enter your financial transactions using two categories. It has two entries per transaction—a debit and a credit. The debit is recorded in one account and the credit is recorded in another. Double-entry bookkeeping helps reduce errors. It also best indicates a company’s financial growth because you have the clearest picture of what money is coming in and out of your business.
While many small business owners start out handling their books on their own—they soon realize it can take a lot of expertise and effort. Luckily, this type of task can be managed by experts. In fact, our Block Advisors small business bookkeeping service can help. Enjoy direct support from account managers — who can help take on your day-to-day paperwork so you can focus on your business – and what you love.
An alternative option is to use a bookkeeping software such as Wave to track income and expenses, manage cashflow, and keep track of your business’ health.
What does good bookkeeping mean?
What does bookkeeping mean – and why does it matter to your business? Bookkeeping is an integral part of your business’ evolving story – and there are several reasons why it matters to keep good financial records. Here are a few:
- It helps you forecast your business’ needs. Whether it’s planning for future purchases or hiring employees, understanding money coming in and out is helpful.
- It enables you to track important financial information at any given time. Investors, customers, lenders, and even the IRS could request financial records at any point, so it’s important this information stays organized.
- It ensures you’ll make timely payments of rent/mortgages, loans, taxes and bills.
- It will help you evaluate your small business’ performance to gauge if it’s growing, stagnant, or declining. This information can help inform future business decisions.
- It helps you give a view of how your business is performing year over year.
- It aids your business in staying compliant with taxes.
What does a bookkeeper do for your business? Find out…
It takes expertise and time to handle your small business’ bookkeeping needs. Expertise means you can know your books are accurate. Time means you’re able to dedicate a portion of your workday to managing your books.
But if you’re like most business owners, you didn’t set out to master bookkeeping – and you need to dedicate yourself to the revenue-generating portion of your business. Outsourcing bookkeeping tasks to seasoned experts may be the choice for you.