What is Bookkeeping?
Bookkeeping is the recording of financial transactions of a company on a regular basis. Through bookkeeping, companies tend to analyze their daily financial transactions. These involve sales revenue, number of sales, operating expenses, payroll, taxation, loan, etc. These records must be accurate so that the company is aware of its financial position. These transactions also help investors and financial institutions to understand the company’s outlook in the market.
Importance of Bookkeeping in an Organization
Quality bookkeeping data is crucial in justifying a company’s financial position. In the financial world, accountants usually get good salaries. And due to this reason, small companies tend to hire bookkeeping professionals rather than accountants. Also, bookkeeping is essential in new startups as they need to record every penny they spend.
History of Bookkeeping
Bookkeeping has been around since the dawn of civilization. Ancient cultures used clay tablets to track the exchange of goods and services, while merchants in the Middle Ages kept track of their inventories using simple tally sticks. Fast-forward to the present day, and bookkeeping is still an integral part of any business’s accounting practices. Let’s take a quick look at how bookkeeping has evolved over time.
The Rise of Double-Entry Bookkeeping: In 1494, Italian mathematician Luca Pacioli wrote: “Summa de Arithmetica, Geometria Proportioni et Proportionalita.” This translates to “Everything about Arithmetic, Geometry, and Proportion.” This book described fundamental concepts and approaches towards record keeping and the creation of ledgers to clarify those records.
Another merchant, Benedetto Cotrugli, wrote a book called “Della mercatura e del mercante perfetto” (Of Trading and the Perfect Trader) in the late 16th century. This book introduced the concept of double-entry bookkeeping. Many large organizations today use the double-entry bookkeeping system to record transactions.
In the 19th century, when business boomed across the globe, inventors made efforts to create machines that would compute the accounting calculations for the merchants. As a result, modern calculators came into existence that would perform the basic four arithmetic operations.
Current Uses of Bookkeeping
Today, bookkeeping benefits businesses through its numerous uses.
Bookkeeping helps you with financial planning. You can use it to plan future strategies. Recording all the transactions gives you a comparative advantage over your competitors in predicting future goals. In addition, regular records help you find flaws in weekly or monthly cash flow changes.
A company has to justify its statements to an external auditor before taxation. Professionals call this process financial reporting. To simplify, instant reporting of your regular transactions helps explain your expenditures to the auditor. These reports can also support when an investor approaches to invest in the company or present a company buyout.
Every company tries to keep its records up to date. The proper recording will ease the process of auditing and will make it cheaper and quicker. It is a quality of a good bookkeeper to work on the details of every record/transaction presented to them.
To enhance a company’s ability to develop regulation reports, a bookkeeper looks for all the transactions that connect with taxation. They will also find methods to update the bookkeeping journals according to new regulations. Correcting mistakes in the journal saves a company from government fines for mismanaged records.
Financial Analysis Improvement
Bookkeeping involves tracking records regularly, also known as Financial Analysis. Companies use these records to improve their financial and investment decisions. Financial analysts require data to develop business strategies for a company. Analysts will make quick decisions with well-maintained journals and help the company allocate its capital best.
Businesses Can’t Function without Bookkeeping
Bookkeeping is vital to fulfilling all tax and legal responsibilities. Bookkeepers make sure records and financial documents are thorough. If the preparation of books is incorrect, the company might overpay the government in taxes, pressurizing the finance department. In addition, a bookkeeper is responsible for accurately recording and preparing tax returns for the company.
Besides the taxation framework, bookkeeping creates records for government regulatory authorities. These authorities use the documents for external auditing purposes. A bookkeeper ensures the updates of the managing journals. These records minimize disparity in regulations.
It is also important to note that good bookkeeping is the fundamental ground for a quality financial analysis. A failure in the bookkeeping record can affect the judgment of the financial analyst. This miscalculation can cost the company a lot of money. Accurate documentation of journal entries will prevent losses faced by the company.
Difference between Bookkeeping and Accounting
Bookkeeping directly records all the daily transactions in a company’s business environment. Bookkeeping is more of an administrative job than finance. It deals with handling data that helps manage the entire cash flow in and out of business.
Furthermore, a bookkeeper manages payroll and remaining debt payments and generates invoices. They are responsible for managing and maintaining the general ledger, including all the transactions with small details. These details include the time and date as well. Bookkeeping does not require a high level of qualifications. However, they can acquire different certifications in the field of accounting and administration.
On the other hand, an accountant is a finance professional responsible for presenting business transactions and financial records to senior management. In addition, they interpret accounting information. Depending on the company’s requirements, an accountant’s job can vary. The variation starts from managing all the company’s financial records to becoming part of the financial team to develop capital strategies for the company.
Accountants present insights to the management through their findings. These findings are sometimes the difference between monthly or quarterly recordings. For example, accounting is a more complex and high-paying job than bookkeeping. Accountants can work as bookkeepers, but bookkeepers can not work as accountants. Because accountants also analyze and verify records presented to them by bookkeepers.
A bachelor’s degree in accounting and finance is a general requirement for becoming an accountant. After completing a bachelor’s degree, one can opt for extra professional certifications such as CPA (Certified Public Accountant). For CPA certification, accountants must complete a minimum of 2000 hours of work experience. Certificates help accountants in advancing their careers. Senior accountants with high-level skills and education become part of a company’s research and development team or C-suites.
Bookkeeping in a Digital Business
E-commerce has dominated the shoppers’ market for the last decade. Every business needs to have a presence online. People tend to shop online to save travel time and cost. In addition, they have a more comfortable shopping experience switching from one website to another.
With the changing shopping scenario, business websites require quick digital transactional records. A robust cloud-based security system enables customers to put their trust in the company with safe and secure product/service buying options. Digital bookkeeping systems will help document all these capital transactions.
Oracle NetSuite and Intuit Quickbooks Online are the two most used bookkeeping software available on the internet. These applications are currently under use by thousands of startups and known brands. With such applications, the company can easily say goodbye to the paperwork.
Digitalization of your business is crucial in the current market. A company can scan customers and their preferences with digital data available online. Analysts do not require to set and review all the books; digital systems are there to work for them.
Furthermore, collaborations are more accessible and quicker. Companies connect through social platforms for partnerships and business advancements. For this entire digital framework to happen, bookkeeping is the first step to conquer. Bookkeeping boosts the company’s efficiency in tracking records in the digital world.
How to Become a Bookkeeper
Bookkeeping is the most in-demand job for remote work. Apart from that, it is the most looked-after job after a financial analyst for a fresh finance graduate. So, if you are looking for a job that will create strong pillars of finance, bookkeeping is perfect. Let us discuss how you can become a skilled bookkeeper and its requirements.
Most companies hire bookkeepers with at least a bachelor’s degree in business or finance. A bachelor’s degree prepares you with basic mathematics, accounting, team building, business law, and small-business development skills. These skills help a bookkeeper construct accurate details and legal documentation.
Bookkeeping training can come from various sources. These sources include online courses or certifications, active training under a senior bookkeeper or accountant, and accounting applications available on the internet.
There are thousands of bookkeeping courses available online. For example, Coursera and Udemy offer courses with different training levels to the general public. Furthermore, Harvard Business School Online and Penn Foster College also provide online certification courses Prominent senior accountants in the finance industry usually prepare these courses. And if not all of this. You can also use youtube videos to build a basic understanding of bookkeeping.
Training under a supervisor can be helpful hands-on experience with bookkeeping. Senior accountants or bookkeepers provide knowledge according to various industry standards. Within six months of training, an entry-level bookkeeper can develop essential skills and expertise. One can observe other finance professionals’ work ethics inside a company’s boundaries.
The average number of openings per year for bookkeeping is more than 170,000, according to the US Bureau of Labor Statistics. Let’s look at the two most common ways people use to acquire bookkeeping roles.
Getting a job
Becoming part of an organization gives you job security. An employee has the benefit of learning and grow at a higher position. With new technologies, this job is currently in hybrid mode. To apply for a job, one should look for job advertisements around the internet. LinkedIn and Indeed are the two most sought-after websites for job offers. You can create an account in both web applications and build a profound resume. As soon as you find a job opening, apply to it with a well-written cover letter to stand out.
If you are not habitual in following orders or like to work flexible hours, freelancing is the right fit. Freelancers connect to their clients through various mediums and create tailored plans for them. Most people start by working in a local company to gain experience. As soon as they believe they are ready to start their own freelance business, they leave their job to pursue a full-time freelance career. With proper networking, a freelancer can get many clients easily.
Specialization in a particular field of bookkeeping can land more clients in freelancing. Other skills such as MS Excel, pivot tables, and data analytics will improve your specialization.
The payment structure for a bookkeeper varies from company to company. There is a big difference between payments for different types of professionals. The pay gap ranges between $17.5 an hour for entry-level bookkeepers to $60 an hour for specialized professionals. The average hourly wage weighs at $24.5. Freelancers can charge according to the client and work involved. With proper calculations, freelancers can make 30% to 40% more than salaried bookkeepers.
Wrapping it Up!
Bookkeeping is a fundamental part of any business. Properly managed transactional documentation helps a company to derive data and develop functioning analysis. All the data gathered by bookkeepers creates the financial and industry analysis for the company.
As the company grows, hiring a bookkeeper to maintain the daily journal becomes necessary. This employment is not an extra expense but a long-term investment that benefits the company. Bookkeeping will always stay with a company no matter how many technological changes it goes through. With the growing number of online businesses, it is the most prominent career, having the potential to grow even more.