What Is Bookkeeping? Getting Started in Accounting

It’s important to note that not all lenders and investors require certified or audited financial statements. However, it’s still a good idea to ask an accountant to review your bookkeeper’s financial statements for accuracy and completeness prior to submitting them to a third party for consideration. And even if you’re not looking for funding, consider asking an accountant to review your financial statements at least once a year.

Ledgers

While any competent employee can handle bookkeeping, accounting is typically handled by a licensed professional. It also includes more advanced tasks such as the preparation of yearly statements, required quarterly reporting and tax materials. While they seem similar at first glance, bookkeeping and accounting are two very different mediums. Bookkeeping serves as more of a preliminary function through the straightforward recording and organizing of financial information.

Read 2,651 Testimonials

1. After you have a few years of experience, you can earn the Certified Bookkeeper designation from the American Institute of Professional Bookkeepers by passing a series of exams.
2. This is the perfect choice for people who work as freelancers or run a one-person shop.
3. If you're ready to build job-ready skills in bookkeeping, consider enrolling in the Intuit Academy Bookkeeping Professional Certificate.
4. Bookkeeping is the process of keeping track of every financial transaction made by a business—from the opening of the firm to the closing of the firm.

While the basics of accounting haven’t changed in over 500 years, the practice of bookkeeping has. Bookkeeping was once done manually using actual books called journals and ledgers. Because bookkeeping is based on double-entry accounting, each transaction affects two accounts — one gets debited and the other is credited. After a certain period, typically a month, each column in each journal is totalled to give a summary for that period. Using the rules of double-entry, these journal summaries are then transferred to their respective accounts in the ledger, or account book. This process of transferring summaries or individual transactions to the ledger is called posting.

What Is Bookkeeping? Definition, Tasks, Terms to Know

Learn at your own pace from industry experts while getting hands-on experience working through real-world accounting scenarios. If you’re like most modern business owners, odds are you didn’t become one so that you could practice professional-level bookkeeping. Outsourcing the work to a seasoned bookkeeper can allow you to focus on your business plan and growth. But if you have the time to dedicate to updating your books regularly, doing your own bookkeeping may be feasible.

You also have to decide, as a new business owner, if you are going to use single-entry or double-entry bookkeeping. You record transactions as you pay bills and make deposits into your company account. It only works if your company is relatively small with a low volume of transactions. Petty cash bookkeeping is a single-entry system that simply records the total amount of money you have in your petty cash drawer. If you’re using an actual introduction to the accounting cycle and its best practices cash box for this, it’s best to keep track of each entry.

Thus, it becomes important for businesses, small or big to have bookkeeping in place. We believe everyone should be able to make financial decisions with confidence. Expenses are all the money that is spent to run the company that is not specifically related to a product or service sold. An example of an expense account is salaries and wages or selling and administrative expenses. If you are what are fixed savings and variable costs going to offer your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system.

Accounting takes that information and expands on it through analyzing and interpreting the data. For example, QuickBooks (from Intuit) is a low-cost bookkeeping and accounting software package that is widely used by small businesses in the U.S. The accounting equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity).

Here, the respective individual or accountant manually enters the account numbers and performs individual action of debits and credits for each transaction. This approach is time-consuming and subject to error, and so is usually reserved for adjustments and special entries. The cash-based system of accounting records financial transactions when payment is made or received. This system recognizes revenue or income in the accounting period in which it is received and expenses in the period in which they are paid. All the financial transactions such as sales earned revenue, payment of taxes, earned interest, payroll and other operational expenses, loans investments etc. are recorded in books of accounts. Typically, single-entry bookkeeping is suitable for keeping track of cash, taxable income, and tax-deductible expenses.

Business

At the end of the appropriate period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm. The year-end reports prepared by the accountant have to adhere to the standards established by what is amortization the Financial Accounting Standards Board (FASB). These rules are called Generally Accepted Accounting Principles (GAAP). The financial transactions are all recorded, but they have to be summarized at the end of specific periods.