What Do Bookkeepers Do and Why Do You Need One?
What is the role of a bookkeeper? They can assist you in monitoring your earnings and expenses, regardless of whether you operate an online business, a physical storefront, or provide specialized services. If you overspend or allocate funds inappropriately, your enterprise may suffer. Fortunately, directing resources toward the right aspects of your business promotes growth.
So, what data is necessary to obtain a comprehensive view of your business's financial situation to make informed choices? Essentially, you need to precisely record every transaction your company makes. What do bookkeepers do? Exactly that, and even more.
Bookkeepers maintain detailed and accurate records of the financial transactions that occur within your business. This can reveal your expenditure patterns and identify which products or services generate the most profit. Such information is crucial for maintaining financial stability, making well-informed business decisions, and developing successful strategies.
Nonetheless, this only provides a general idea of a bookkeeper's responsibilities. A thorough response to the question, "What do bookkeepers do", and whether it is necessary to hire one, can only be provided by further examining their worth. Let's investigate further.
What Does a Bookkeeper Do?
A bookkeeper is an expert responsible for maintaining a business's financial affairs in an organized manner. Their main tasks involve arranging, documenting, and presenting the financial activities of your company throughout its existence.
Responsibilities encompass managing the organization's accounting records, accurately entering transactions, and generating financial statements. Additionally, they guarantee that the data is orderly, easily retrievable, compliant with legal requirements, and comprehensive.
Entrepreneurs and accountants depend on the information compiled by the bookkeeper. This data can offer detailed insights into a firm's financial well-being and aid in forecasting and ongoing financial decision-making.
How Does a Bookkeeper Differ from an Accountant?
Bookkeeping is a component of accounting. The bookkeeper is responsible for creating and maintaining precise business records and generating financial statements. However, a comprehensive comprehension of this information extends beyond the realm of bookkeeping.
Accountants decipher the figures and transform intricate concepts into clear, valuable, and actionable insights. They possess formal education, are subject to industry regulations, and adhere to stringent professional and accounting norms.
Consequently, they are more equipped to assist you in understanding risks, devising strategies, formulating budgets, and supplying you with practical data for well-informed business choices.
Brief Overview of Bookkeeping History:
Bookkeeping is an age-old profession. Various ancient civilizations such as the Sumerians, Babylonians, Egyptians, Greeks, and Romans kept records of their commerce. The contemporary bookkeeping practice emerged in the 15th century when an Italian mathematician introduced the double-entry bookkeeping system in his publication.
This method continues to be employed today for precise transaction logging and enhancement of business effectiveness and profitability. However, unlike ancient times when clay tablets and bones were used, today's bookkeepers benefit from the power of advanced accounting software.
What Are the Tasks of Bookkeepers?
Inquiring about a bookkeeper's role from ten individuals might yield ten distinct responses. This is due to the wide range of tasks bookkeepers can undertake, depending on their expertise and the requirements of their employer.
Nevertheless, there are several common responsibilities that most bookkeepers share. We have outlined ten of them below, but it's worth noting that a bookkeeper may manage numerous additional tasks.
Ensure Bookkeeping Practices Adhere to Federal, Regional, & Local Regulations
A competent bookkeeper confirms that accounting software is current and that entries and reports meet the latest legal requirements. Thankfully, major accounting software providers typically track regulatory changes and inform users.
Nonetheless, your bookkeeper must accurately interpret these compliance adjustments. If they are uncertain about how to handle a specific situation, they should seek clarification to guarantee your business remains compliant. This is particularly crucial for tax-related matters, as errors can result in audits, penalties, and increased scrutiny. Fortunately, bookkeepers prioritize compliance.
Produce Essential Financial Reports for Your Company
Another critical responsibility of a bookkeeper is creating periodic financial reports. These reports can be utilized by business owners, lenders, investors, and other stakeholders to evaluate the financial health of your organization.
With the aid of automated bookkeeping software, bookkeepers can produce these reports as required. The most frequently generated statements are the income statement, balance sheet, cash flow statement, and the statement of retained earnings.
Oversee Bank Feeds
Bank feeds are integrated into your accounting software, enabling automatic downloading of transactions from your bank. This feature significantly reduces the need for manual entries by your bookkeeper and accelerates account reconciliations.
Examples of these transactions are incoming deposits and automatically assigning specific credit card expenses to designated categories. It is essential for your bookkeeper to supervise these automated transactions to ensure accurate categorization.
Balance Your Bank Accounts
When inquiring about a bookkeeper's tasks, reconciling bank accounts is often one of the first responses, as it is crucial. Reconciliation involves comparing your monthly bank balances with the figures in your accounting software to ensure they align. If discrepancies are found, the bookkeeper must investigate the cause.
Differences between the two balances can occur when the bank records transactions that are not present in the system. For instance, a check may have been issued but not logged in your records. In other cases, discrepancies may be due to data entry errors or duplicate entries. Unfortunately, theft or fraud can also lead to disparities. Regardless, it is preferable to identify issues early, and reconciliation serves a vital role in this process.
Manage Invoicing and Bill Payments
A bookkeeper might also be responsible for ensuring prompt collection of invoices sent to your clients and settling the bills you owe.
This typically entails utilizing accounts payable and accounts receivable modules within your accounting software. Accounts payable refers to the amounts owed to vendors and suppliers, while accounts receivable encompasses unpaid invoices for completed work.
Collaborate with Your Accountant and Organize the Books for Them
Many companies prefer to employ a bookkeeper for routine transactions and consult an accountant for in-depth guidance. Consequently, bookkeepers and accountants often collaborate closely.
Your bookkeeper might close the fiscal year when tax time approaches or create financial reports if you're pursuing investors, loans, or a business sale. Since the bookkeeper is familiar with your business, they can facilitate communication and streamline processes, preventing misunderstandings. Nonetheless, it's the accountant who is qualified to prepare official reports.
Oversee Cash Flow
Cash flow serves as a crucial indicator of a company's well-being and is essential information for investors. Your bookkeeper can monitor the flow of cash in and out of your business to ensure sufficient funds are available for day-to-day operations.
A positive cash flow yields numerous advantages, such as helping your business weather challenging periods. It can also enable your company to repay debts, invest in new products or services, or expand successful aspects of the business. If your company has shareholders, a positive cash flow can be utilized to distribute dividends.
Additionally, your bookkeeper will notify you if your business experiences negative cash flow, allowing you to promptly implement necessary adjustments.
Preserve Financial Documentation
When it comes to the question, "What do bookkeepers do?", another key responsibility is maintaining your organization's financial records.
Typically, your accountant establishes the chart of accounts for your enterprise. They might also define budgets for specific products, services, and business expenses. Once in place, your bookkeeper oversees and preserves these records, making sure transactions are logged accurately, data stays precise, and reports offer a thorough understanding of the information.
Classify and Document All Financial Activities
Monitoring the movement of funds in and out of your business is achieved by classifying transactions. Each transaction is allocated to a specific expenditure or income account.
For example, a bookkeeper might obtain a receipt for printer paper and an invoice for an airplane ticket. These expenses would then be entered into the accounting software under office supplies and travel expenses, respectively.
Income is also assigned to its respective categories. Certain transactions, including bank fees, interest, and adjustments, are imported from the accounting system's bank feed.
Ensure Readiness for Tax Season
There's nothing more stressful than scrambling to gather the necessary information for filing your taxes. Thankfully, having a bookkeeper can alleviate this frustration.
What is the role of a bookkeeper? They maintain organization throughout the year, so when tax season arrives, you're prepared. Most business owners lack the time to monitor tax deadlines or the expertise to fulfill compliance requirements.
Your bookkeeper guarantees that all invoices and receipts are accurately documented and stored. When tax time comes, generating precise financial statements for your accountant becomes a simple task.
Although your bookkeeper won't be responsible for preparing your business tax returns, they play a crucial role in streamlining the process, easing your burden, and minimizing risks.
This list outlines ten responsibilities of a bookkeeper, but their duties could easily extend beyond these. Our information offers a general understanding of the most common tasks bookkeepers perform for businesses.
Nonetheless, we often encounter three recurring questions when discussing bookkeepers and their responsibilities. Let's address those questions now.
What Qualities Should a Bookkeeper Possess?
In Canada, the National Employment Classification for a bookkeeper specifically cites two years of education through a recognized professional accounting program or relevant courses, combined with several years of experience.
An excellent bookkeeper should also have strong references and testimonials from businesses similar to yours. Are their clients enthusiastic about the bookkeeper's dedication and commitment to their company? Is the bookkeeper professional, trustworthy, reliable, and discreet? Are they effective communicators who can explain complex issues?
Do Bookkeepers Handle Taxes?
Bookkeepers generally assist with tax preparation, but they are not certified to file taxes. They also cannot provide tax planning advice. However, employing a bookkeeper for daily recordkeeping is often more cost-effective, as their fees are typically lower.
Accountants possess the necessary credentials and expertise to address tax-related needs. Some bookkeepers collaborate with accountants, forming a mutually beneficial partnership.
Can a Bookkeeper Manage Payroll?
Yes, bookkeepers occasionally include payroll services in their offerings. They can compute wages, withhold deductions, and issue payments using payroll software.
Is Inventory Management Possible for a Bookkeeper?
Indeed, some bookkeepers provide inventory management as a part of their services. They can monitor sales against existing inventory levels and assess the cost of goods sold. Additionally, they can identify discrepancies and offer suggestions for ordering.
Conclusion
A proficient bookkeeper stays attuned to the heartbeat of your business. They can offer a snapshot of your financials at any moment to support better business decisions.
Moreover, bookkeepers save you precious time, allowing you to focus on generating more revenue. Why expend your time and energy when a skilled, professional bookkeeper can do a superior job more quickly?
What is the role of bookkeepers? They contribute to the success of companies. Whether you run a small, medium, or large enterprise, Tifones Bookkeeping Services provides a dedicated bookkeeper, customized, scalable solutions, current books, and real-time access to your financial data.
