Tracking and recording a business's financial transactions may be a difficult task. In this Business Kitz blog, we will explain what bookkeeping involves, and provide a breakdown of bookkeeping duties.

What is bookkeeping?

Bookkeeping is the daily recording of a company's financial transactions into structured accounts.

Bookkeeping is an essential aspect of the accounting process because it allows you to develop accurate financial reports that assist in monitoring business success by keeping transaction records up to date. Detailed records may also come be helpful if you are subject to a tax audit.

What does a bookkeeper do?

Bookkeepers track and record business activities and compile them into reports which demonstrate how the company is performing. They may also be responsible for other activities like invoicing, bill payment, tax preparation, key performance indicator monitoring, and strategic consulting.

Bookkeepers have an essential role in a business, as their reports go to business owners and managers to help them make decisions. Bookkeepers can do a variety of tasks, ranging from basic data entry to advising on corporate strategy, but data entry and bank reconciliation are the two most essential duties in small business bookkeeping.

What is the difference between accounting and bookkeeping?

Although the two may appear to be extremely similar, there are a few key distinctions.  Traditionally, bookkeeping refers to the day-to-day maintenance of a company's financial records while accounting is the study, reporting, and summarization of data gathered by bookkeepers.

Accountants need extensive knowledge of taxes and regulations that companies must follow while bookkeepers make sure the financial information is accurate and up-to-date.

Types of bookkeeping

Before you start bookkeeping, your company must choose which system to use. Before making any decisions, you must consider the number of daily transactions and the revenue your business generates.

The following are some methods of bookkeeping:

• Single-entry bookkeeping is a simplified technique of bookkeeping in which each transaction is documented in a journal as a single entry.
• Double-entry bookkeeping is a system of documenting transactions in which an entry is made in at least two accounts as a debit or credit for every business transaction.
• Cash-based or accrual-based bookkeeping. In cash-based, you recognize revenue when you receive cash into your business, whilst with the accrual method, revenue is recognized when it is earned.  Both of these systems are compatible with single-entry and double-entry bookkeeping.

Bookkeeping record methods

Even though recording methodologies have changed significantly in recent years, there are still some businesses that employ manual procedures and physical diaries. However as technology develops more, even smaller companies may benefit from going digital. The following are manual record keeping methods:

• Journaling; the journal is the place where a company first records its transactions in chronological order. A journal may be printed or electronic. It details each transaction's date, the accounts that were credited or debited, and the total cost involved.
• Ledger; a ledger is a record of financial transactions.  Transactions are categorised into distinct accounts after being recorded in a journal, and then they are moved into the ledger. Ledgers must always be balanced at the conclusion of the fiscal year because, unlike the journal, they are audited.
• Trial balance; the collected and condensed ledger entries are used to create the trial balance. A trial balance function is a test to see whether your books are balanced.

What is the difference between accounting and bookkeeping?

Traditionally, bookkeeping refers to the day-to-day maintenance of a company's financial records while accounting is the study, reporting, and summarization of data gathered by bookkeepers.

Accountants need extensive knowledge of taxes and regulations that companies must follow while bookkeepers make sure the financial information is accurate and up-to-date.

Why is bookkeeping important?

Accurate bookkeeping drives your company to success. It is a foundational accounting process, and developing strategies to improve core areas of your business would be nearly impossible without it. 

Legal advice

Bookkeeping is an important part of a business, and implementing the wrong system for your company can cause challenges. If you have any doubt about what methods you should use or need legal advice, our sister company, Legal Kitz can assist you. To arrange a FREE consultation with one of their highly experienced solicitors, click here today, or contact their friendly team at info@legalkitz.com.au or 1300 988 954.