Bookkeeping definition
/What is Bookkeeping?
Bookkeeping involves the recordation of basic business transactions in a recordkeeping system. In essence, the term implies that an individual is tasked with the most common ongoing accounting transactions; more complex transactions are reserved for those with more advanced accounting training.
The Importance of Bookkeeping
A well-run bookkeeping function is an essential requirement for organizations, because it quantifies the results of their operations. The financial statements resulting from bookkeeping activities are used by managers to make adjustments to how the business is run, and may impact their strategy decisions. The financials can also be compared to the annual budget to discern where there are variances that should be addressed. In addition to these recording and reporting tasks, the bookkeeping function also handles all billings to customers and invoice payments to suppliers, as well as compensation payments to employees. In short, a business cannot survive without the essential tasks being addressed by its bookkeeping function.
Types of Bookkeeping Activities
A bookkeeper is usually involved in the general accounting areas noted below.
Accounts Payable
The bookkeeper records supplier invoices in the accounting system, obtains approvals for them, and pays suppliers in accordance with the payment terms stated on each invoice.
Customer Billings
The bookkeeper receives shipment information from the shipping department and uses it to prepare billings to customers. The bookkeeper also makes collection calls to customers whose invoices are overdue for payment. As part of the billing process, the bookkeeper also remits sales taxes to the government.
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Cash Receipts
The bookkeeper records all customer payments in the accounting system, and then delivers the checks and cash to the bank, so that it can be deposited in the company’s checking account.
Payroll
The bookkeeper collects timesheet information from employees and pay rate information from the human resources department, and uses these inputs to prepare a periodic payroll. The bookkeeper also prepares paychecks for employees, and remits payroll taxes to the government.
Financial Statements
The bookkeeper may prepare preliminary financial statements, but may rely upon an accountant to produce the final statements.
Accounting Records
The bookkeeper is responsible for filing all supporting documents for customer billings, supplier invoices, and payroll. This information must be sufficiently organized that the auditors can easily access information when they conduct the year-end audit.
Accounting Activities Not Associated With Bookkeeping
Bookkeeping can also be defined by what it is not, which includes any of the more advanced one-time journal entries to account for unusual events, as well as the preparation of more detailed accounting schedules. These advanced accounting tasks are needed to refine the financial statements to accurately reflect the results, financial position, and cash flows of an organization - tasks for which a bookkeeper is not trained.
Bookkeeping Requirements
Bookkeeping requires a basic knowledge of accounting, but not an accounting degree. Instead, bookkeepers can become quite proficient with hands-on training and a modest amount of accounting knowledge. They can call upon the local certified public accountant for answers to the more difficult questions that may arise.