What the Hell Is Bookkeeping Anyway?
Bookkeeping is the activity of keeping records of the financial affairs of a business. Sounds thrilling, right?
Keeping the books can be done in a number of different ways across various different platforms. For example, some small business owners “keep their books” using a haphazard method involving receipts, bank statements and an extensive and tedious spreadsheet. Sound familiar? This method is painful and time consuming. Most business owners should be using specialized accounting software like QuickBooks or Xero or Freshbooks or Less Accounting or contracting a bookkeeper or bookkeeping service. Any and all of these applications are great for keeping books.
The main function is to keep consistent records of the daily accounting transactions.
Bookkeeping is comprised of:
- Recording financial transactions
- Posting debits and credits
- Creating invoices
- Maintaining and balancing general ledgers and historical accounts
- Completing payroll
So now you’re probably thinking, “Ok, this is great, but why the hell should I care about bookkeeping?” Oh well, we’re glad you asked. You should care about bookkeeping for a few reasons.
The first is that bookkeeping is important in generating your company’s financial statements. If you keep the books accurately and regularly, you have the data to look at your income and expenses for the previous month, week, quarter, year, etc.
Bookkeeping organizes your company’s transactions for you. It plugs all these numbers into the proper reports so you can make the right decisions for your company.
Taxes & Such
No matter what type of entity you have, you’ll need to files taxes at the personal level at the very least. The taxes your accountant files for you are based on your financial transactions throughout the year. Keeping accurate books on a regular basis helps ease the pain of this tax prep. Think back to last April. You were probably looking through bank statements, trying to figure out what that $68 dinner back in November was for. What is for a client? What about that $98 charge for Amazon — was it a gift, was it office supplies?! Oy! Avoid this. Avoid this like the plague! Keeping your books helps you do just that.
So for reasons that range from mental healthiness, practicality and downright necessary for being a good business owner, keeping books isn’t just for nerds — it’s for everybody!
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where your bookkeeper records the amounts from sale and expense receipts. The ledger is typically created with software, a computer spreadsheet, or simply a lined sheet of paper (again, we definitely recommend the former. C’mon, it’s the 21st freaking century).
All of your company’s sales and purchases need to be recorded in the ledger and certain items need supporting documents. The IRS clearly lays out which business transactions require supporting documents on their website. It’s all very riveting material, as I’m sure you can imagine.
And there you have it — bookkeeping in a nutshell.