As you look to grow your business, you may ask yourself ‘What does a bookkeeper do?‘ Small businesses of any size can benefit from working with a bookkeeper. Bookkeepers carry out essential duties that keep the business running smoothly. These duties ensure businesses can comply with different laws, policies, and regulations — especially when it comes to payroll, account management, and taxes.
There are various aspects of small business management that benefit from bookkeepers’ hard work. Here’s an overview of the seven things bookkeepers do for small businesses.
What Does a Bookkeeper Do?
A bookkeeper has many duties to make sure small businesses comply with federal requirements. On top of these seven main duties, bookkeepers must also stay up to date with other bookkeeping components of their job.
1. Reconcile Bank Accounts
The first thing that a bookkeeper does focuses on reconciling bank accounts.
There are four steps to bank reconciliation. First, bookkeepers will choose their method for reconciliation. The method chosen will vary on how your small business tracks its money. They may use accounting software, mobile apps, or a spreadsheet to track transactions.
Next, the bookkeeper will compare deposits. This allows them to examine personal transactions to your bank statements. They’ll do this to:
- Ensure all deposits on the bank statement are also in your personal records.
- Check if the deposits in records are also present in your bank statement.
- Adjust records to reflect your deposits as needed.
The third step to reconcile bank accounts is for a bookkeeper to compare withdrawals. They’ll compare personal records to the bank statement to make sure withdrawals are on both records.
Finally, a bookkeeper will look for bank adjustments. If there are any bank adjustments, they’ll record the adjustments in your personal records.
2. Manage Accounts Receivable
Bookkeepers also manage accounts receivable. Accounts receivable is the money a customer owes a business for its goods or services.
A bookkeeper will record accounts receivable in the general ledger. On a balance sheet, they’ll report accounts receivable as a current asset.
3. Manage Accounts Payable
One of the major aspects that bookkeepers manage is accounts payable. Accounts payable is the debt owed to a business, supplier, or vendor.
Bookkeepers manage accounts payable by:
- Categorizing data in chart of accounts
- Including vendor purchase information in accounts payable
- Understanding payment methods and terms
- Checking invoices for accuracy
- Processing payments
- Recording payment information in the general ledger
Invoices are useful during the accounts payable process. Bookkeepers will use information from an invoice to note the products or services a third-party provided. For accounts payable, invoices may contain:
- Contact information
- Payment terms
- Product or service provided
- Purchase order number
4. Prepare Financial Statements
Bookkeepers also are responsible for preparing financial statements. Financial statements are useful, not only for small businesses, but for potential investors.
Financial statements detail three aspects of your small business’ health:
- Balance sheet
- Cash flow statement
- Income statement
Bookkeepers will use the balance sheet to provide information about small businesses. The balance sheet is a formula of assets equaling the total of equity plus liabilities. The assets should equal the total of liabilities and equity.
The balance sheet only provides this information from the date on your balance sheet, so it won’t provide a more detailed overview of your small business’ health.
Second, the cash flow statement is another component of the financial statement. A bookkeeper will form a cash flow statement to see how a company conducts its operating activities, investing activities, and financing activities.
The third part of the financial statement is the income statement. Income statements can cover a longer time span, such as annually or quarterly.
To calculate net income for the income statement, a bookkeeper will:
- Total all revenue for the period.
- Total all costs of operating business and all expenses.
- Subtract the total expenses from total revenue to determine net income.
5. Process Payroll
Processing payroll is the fifth responsibility of bookkeepers. There are distinct steps that occur during this process, so bookkeepers can pay employees and document necessary changes. These steps include:
- Checking employee records and make adjustments if necessary
- Determining hours worked during pay period
- Processing wages, direct deposit, and paychecks
- Processing deductions
- Reporting payroll (to comply with Fair Labor Standards Act)
6. Record Financial Transactions
When it comes to maintaining detailed records, it’s essential that your bookkeeper can record financial transactions accurately. They’ll record transactions in a journal or using the software. They’ll also track them with single-entry or double-entry bookkeeping.
Documentation from previous steps, such as an invoice, purchase order, or receipt, is also useful for recording financial transactions. Your small business accounting method may affect how and when your financial transactions are recorded.
7. Assist with Tax Compliance
The last core duty of a bookkeeper has to do with tax compliance. All businesses must comply with employer and federal requirements. A bookkeeper can work with you to make sure your small business is complying with tax requirements.
If a small business doesn’t adhere to tax compliance rules, the IRS can audit small business books and they can review taxpayer records during audits. This audit can last from a few months to a few years, so a bookkeeper’s help may be useful for you.
What’s the Difference between Bookkeeping and Accounting?
The differences between bookkeeping and accounting can be found in job duties and responsibilities.
Accounting provides analysis and insights about small businesses based on bookkeeping data. Accounting comprises:
- Adjusting entries
- Analyzing and verifying data
- Generating reports, performing audits, and preparing financial reporting
- Helping business owners understand their financial decisions
- Providing forecast information, opportunities, and trends for growth
Bookkeeping involves recording financial transactions. Bookkeeping comprises:
- Balancing and maintaining accounts and ledgers
- Managing payroll
- Posting debits and credits
- Producing invoices
- Recording financial transactions
Say Hello to Better Bookkeeping
Bookkeepers play a big role in small businesses. Their work creates a foundation for small business owners to meet multiple requirements and comply with tax compliance. Their work also allows small business owners to focus on their business and its success.
When your business needs help with bookkeeping, make sure you work with bookkeeping experts. Work with the bookkeeping pros at 1-800Accountant when your small business has bookkeeping needs.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.