This allows a business to keep track of every transaction made over a period of time, from the opening of the business to its closing. A bookkeeper is responsible for recording, classifying and organizing each financial transaction made during business operations, recording them with specific ledgers or software platforms.
What are the basics of bookkeeping?
- Basic bookkeeping knowledge involves working with assets, liabilities, equity, revenue, expenses and costs.
In order to maintain the success and status of a business, a bookkeeper must possess a strong knowledge of basic bookkeeping fundamentals, including terms like assets, liabilities, equity, revenue, expenses and costs, as well as how these factors play into the business at large. Assets, liabilities and equity are all associated with keeping a balanced book and the relationship between what a business owns compared to what it owes. Overall, bookkeepers record all revenue, costs and expenses that will be compiled into income statements that accountants rely on.
What is the difference between accounting and bookkeeping?
- Bookkeeping is the logging of all transactions while accounting is a more analytical interpretation of financial information.
Both bookkeeping and accounting are crucial to the financial wellbeing and overall performance of any business. The two tasks are related but differ greatly. While bookkeeping refers to the recording of all transactions that a business is involved in, accounting is the analysis for the overall financial health of the business. For this reason, bookkeeping is a preliminary process to accounting.
Businesses may have differing accounting needs over time, with larger organizations possibly needing financial transactions summarized on a quarterly basis and smaller firms only requiring yearly financial statements prepared for tax purposes. At the end of the analysis period, the accountant is responsible for taking the information provided by bookkeepers and reviewing statements, completing required returns, analyzing costs and communicating financial standing to other company leaders.
What exactly does a bookkeeper do?
A bookkeeper is responsible for balancing a business’s financial books on a transaction-by-transaction basis.
Bookkeepers are responsible for having a complete understanding of the business’s basic accounts. This includes any sub-accounts, as well as all assets, liabilities and equity associated with each account.
Assets refer to anything the company owns, such as inventory, accounts receivables, cash, equipment, facilities and land. Liabilities are anything that the company owes, such as debt on the books, accounts payable, accruals, loans, taxes and mortgages. Equity is the investment a business owner and other investors have placed within the firm. In order to keep the company’s book’s balanced, a bookkeeper will use the formula assets = liabilities + equity to measure what the company owns against liabilities owed and what owners have the right to claim.