Maintaining harmonious business finances means taking account of each of your financial transactions. This information is not only essential for tax purposes, but also helps to ensure visibility when it comes to your business cash flow. The more accurate and up-to-date your records, the easier it is to manage your small business finances.
Financial records must be kept up to date on a daily basis. But most small businesses do not have the time or resources to maintain these records on their own. As such, they often rely on a bookkeeper or automated bookkeeping software to document their transactions and keep their books well maintained.
Without proper bookkeeping, businesses can be left vulnerable to tax compliance issues or blind spots in their cash flow.
Examples of bookkeeping tasks
Bookkeeping is an essential part of a company’s financial management. And this discipline encompasses a broad range of different tasks. As part of their responsibilities, a bookkeeper may be involved in:
- Keeping a record of all financial transactions
- Managing a company’s bank feeds and reconciling its business accounts
- Managing accounts receivable and accounts payable
- Managing the company’s payroll
- Monitoring the depreciation of company assets
- Helping accountants to prepare financial reports and statements
- Data entry and assisting in the preparation of tax reports
Bookkeepers may also be involved in improving the efficiency of the accounting process, using cloud-based software to automate and streamline bookkeeping tasks.
What’s the difference between bookkeeping and accounting?
If your small business already has an accountant, does it really need a bookkeeper as well? While the terms bookkeeping and accounting are often used interchangeably, the definition of a bookkeeper is different to that of an accountant.
A bookkeeper’s job is to keep track of the day-to-day financial transactions of their business clients. An accountant, on the other hand, deals more with the bigger picture. Accountants will often work alongside bookkeepers, analysing and reviewing the data they provide for a company’s books in a given financial year.
Frequently asked questions about bookkeeping
What is a double-entry system?
Those unfamiliar with the discipline of bookkeeping may be unfamiliar with the meaning of terms like single-entry and double-entry.
Double-entry bookkeeping works on the principle that every transaction has two parts – a credit on one side and a debit on the other. For instance, if a small business takes out a $10,000 loan, it will be logged twice under a double-entry system. Assets will be credited by $10,000 while liabilities will be debited by $10,000.
Should I use an in-house bookkeeper or outsource?
Businesses have several options when it comes to their bookkeeping. They can hire their own in-house team, outsource this function to a third-party company, or have an approach that combines both.
An in-house team will provide you with great availability with instant support when you need it. However, you can expect to pay more in terms of overheads once their salary and pensions are taken into account. Outsourcing, on the other hand, can be much more cost-effective and better suited to the needs of SMEs.
An alternative approach is to use automated bookkeeping software and have an individual or small team take responsibility for its implementation alongside their existing duties.
Can I do my own bookkeeping?
Micro businesses and sole traders may find it more cost-effective to do their own bookkeeping and give their accountants access to their records. There are lots of free bookkeeping courses out there that can provide SMEs with a grounding in the discipline.
With the aid of automated business software, it may be easy to integrate light bookkeeping into your existing business operations.
This article is for informational purposes only and does not constitute legal, employment, tax or professional advice. For specific advice applicable to your business, please contact a professional.