What is Bookkeeping? Definition and Why It’s Important

This site does not include all companies or products available within the market. Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Prior to joining the team at Forbes Advisor, Cassie was a content operations manager and copywriting manager. The bookkeeper is generally responsible for overseeing the first six steps of the Accounting Cycle, while the last two are typically taken care of by an accountant. While there is a general overlap between the two professions, there are a few distinctions that are later discussed in this article.

Small businesses and sole proprietorships are also required to comply with local legal requirements for bookkeeping, such as filing taxes and maintaining proper recordkeeping practices. Maintaining accurate financial transactions is essential in adhering to bookkeeping policies and ensuring legal requirements are met. Get your small business’ bookkeeping off on the right foot with banking tools that make transacting simpler than ever to manage.

How to become a bookkeeper

Most accountants have a bachelor’s degree in accounting and are skilled in interpreting financial records to make business recommendations. Accountants, on the other hand, use the information provided by bookkeepers to summarize a business’s financial position and render financial advice to the business owner. Many accountants also prepare tax returns, independent audits and certified financial statements for lenders, potential buyers and investors. One way to think about it is that bookkeepers lay the groundwork for accountants to analyze and prepare financial statements. The level of pressure or stress experienced by a bookkeeper can vary depending on factors such as the size of the business, the complexity of the financial records, and the individual’s workload. Tight deadlines, regular financial reporting, and reconciling discrepancies can be demanding at times.

QuickBooks has a section that you can manually insert all the taxes, information, and deductions for each employee’s paycheck and then print those out, or you can do an electronic version of that. In the meantime, though, here’s a quick summary to help you figure out which kind of bookkeeping is right for you, from the lowest maintenance to the most resource-intensive. You can learn more about how much it costs to hire a bookkeeper here, with a rundown of how much you can expect to pay for the different types. If your business is ever audited by the IRS — or if it just has a question for you — your bookkeeper can act as your liaison. This involves creating outgoing invoices you might need to send a client you’ve done work for.

Product manager career path

When it comes to the business’s bookkeeping and tax consequences, a small business owner should consider getting advice from a professional to answer the question of “do I need a CPA? Not having a CPA lined up (and consequently doing key steps in your financial management process incorrectly) can prove more costly in the long run due to mistakes, fees and delays. At tax time every year, the IRS wants to know how you’re spending your money. They want to see the breakdown of how much a business spends in different categories, including meals, utilities, wages for your employees, and the list goes on. The IRS will ask for the dollar amount for each of those things, and it’s important for business owners to be specific and thorough in their bookkeeping.

Single-entry bookkeeping records one entry for transactions, whereas double-entry bookkeeping involves both a debit and a credit for each transaction. Double-entry accounting is the more popular method, because it creates accountability and transparency. what exactly does a bookkeeper do Maintaining your small business’ books is just about the most important part of being a business owner. Without good bookkeeping, it’s nearly impossible to gauge the financial health of your company, understand your cash flows, or plan for the future.