What is Bookkeeping and Why is it Important?

Did you know that bookkeeping dates as far back as 7000 BCE? It’s true! Evidence of financial record keeping has been found in Mesopotamia, Babylon, Sumer and Assyria.

Yes, it was very simple back then, a farmer would trade produce for a cow, but that is how important bookkeeping has been throughout the ages. In the 15th century, the roots of modern bookkeeping were established and in the 1800s it became a recognized profession.

Bookkeeping is widely defined as the practice of recording and tracking the financial transactions of a business.  This one sentence does not truly define all the work a bookkeeper does. 

Bookkeeping has a multitude of tasks associated with it.  These tasks are broken out into three categories: core duties; additional duties; advanced duties. 

The Three Categories of Bookkeeping

Here are some of those duties:

1. Core/Main Duties:

  • Recording financial transactions such as:
  • Expenses
  • Deposits
  • Matching payments to invoices
  • Recording deposits
  • Pull an accounts receivable/deposit report

2. Cross-referencing the books against bank statements and other course documents like credit card statements to confirm accuracy.  This is also known as bank and/or credit card reconciliations.

3. Monthly reports such as:

  • Profit and loss
    • This statement is a business report that shows your business’ revenues and expenses and how much profit or loss you made for a specified period. 
  • Balance sheet
    • This shows the financial position of a company as of a particular date.  It has three components: assets, liabilities and equity.  For your balance sheet to be properly balanced, the total of your assets must equal the combined total of liabilities and equity.
  • Cash flow statements
    • This shows every single incoming and outgoing cash transaction and how you spend and earn your money over a certain period.  The statement breaks down the transaction into three categories: operations, investing and financing.  This statement provides a comprehensive view of how your business operates, where it’s making money, and how to make choices about cash management.

Additional Duties of a Bookkeeper

  • Accounts Receivable – create and send invoices and follow up on payments.
  • Accounts Payable – making sure your suppliers and/or vendors are getting paid promptly, and that the invoices you receive from them are accurate.
  • Payroll, calculating pay and the government deductions.

Girl using calculator

Advanced Duties of a Bookkeeper

  • Preparing tax returns.
  • Assisting with annual income statements and balance sheet reports.
  • Creating budgets and forecasts.
    • Two of the most important pieces of your business are your budget and forecasting for the next 6 months to years ahead.
  • Reviewing and researching software solutions and internal controls to streamline the business and enhance performance.  Then implement and train others on the software chosen.
    • Dext (formerly Receipt Bank) is a software we highly recommend to save you time and space. Dext allows you to take a picture of your receipt and it automatically syncs with QuickBooks. Saving both you and your Bookkeeper time.
  • Liaison with the accountant on your behalf about the financial and tax inquiries and with the tax authorities.
    • From our experience, business owners can spend countless hours on the phone per year with their accountants. Allowing your Bookkeeper to take over this role will free up your time and let’s face it, your energy, to work on tasks or projects you enjoy.

The Bookkeepers Umbrella

Many tasks can fall under the umbrella of bookkeeping, but these are the most common ones that can give you an accurate picture of your books and drive your business forward.

Accurate bookkeeping helps a business manage its cash flow, meet its financial obligations, and help plan your business’ future investments.

Conclusion

So why is it important for your business to have a Bookkeeper?  Well let’s face it, do you have the time to do this?  Wouldn’t you rather grow your business than be bogged down in paperwork, virtual or otherwise? 

The average Bookkeeper spends about 20 hours a month keeping you financially organized.  That’s 20 hours you could spend gathering new clients and/or nurturing your existing clients. If an experienced Bookkeeper takes 20 hours, chances are that you are taking more.

VEA’s virtual Bookkeepers are happy to take all these responsibilities off your hands.

No matter how big or small your business is, those tasks above do not change.  In the last two decades, all these tasks have now become virtual ones.  Bookkeeping software such as Quickbooks, Freshbooks, Sage etc., are all online and VEA virtual Bookkeepers are well-versed in these software programs.  They can easily manage your books so you can concentrate on the bigger picture, to grow your business.

VEA’s virtual Bookkeepers are in the background ensuring your business runs smoothly by recording all the expenses, reconciling your bank transactions, and reporting back to you your profits, which in turn, helps you plan for the future.  

At year-end, your Bookkeeper will liaise with your accountant to ensure all is up to date and ensure that filing your year-end is seamless and efficient.  This means you spend less on expensive accountants.  That’s a win for you and for the Bookkeepers.