what is books keeping

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What Is Bookkeeping? Definition, Tasks, Terms to Know

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Table of Contents

The evolution of bookkeeping

What is a bookkeeper’s job, what is the difference between bookkeeping and accounting, common bookkeeping terms.

Bookkeeping is broadly defined as the recording of financial transactions for a business. It’s a key component of the accounting process and can be done as frequently as daily, weekly or monthly. Accurate bookkeeping is vital to filing tax returns and having the financial insights to make sound business decisions.

QuickBooks Online

Modern bookkeeping was formally established in the late 15th century when Italian mathematician and Franciscan monk Luca Pacioli described double-entry bookkeeping in his book, “Summary of Arithmetic, Geometry, Proportions and Proportionality.”

While the basics of accounting haven’t changed in over 500 years, the practice of bookkeeping has. Bookkeeping was once done manually using actual books called journals and ledgers. Because bookkeeping is based on double-entry accounting , each transaction affects two accounts — one gets debited and the other is credited. These debits and credits had to be manually recorded and balanced.

The advent of accounting software significantly lessened the tediousness of bookkeeping by handling debits and credits for you in the background. And technologies like optical character recognition (OCR) and bank feeds have come just short of fully automating the traditional bookkeeping process. Data entry can now happen as soon as you snap a photo of a receipt with your smartphone. And reconciliations happen almost in real time through daily bank feed maintenance, making the end-of-month closing process a snap. Now one bookkeeper can manage the bookkeeping for several businesses in fewer than eight hours a day.

» MORE: Bookkeeping 101: A crash course in small-business bookkeeping

Bookkeeping means different things to different people. Some bookkeepers focus solely on “write up” work, which basically consists of compiling the books quickly, usually for tax preparation purposes. Other bookkeepers provide “full-charge” services and can even serve as a financial controller for your company.

Full-charge bookkeeping tasks can be broken down into four broad categories.

1. Data entry

Data entry involves entering your business’s transactions into your bookkeeping system. As mentioned above, a lot of the data entry now happens automatically, either through OCR or bank feeds.

There's more to data entry than just putting the numbers into your software, though. Proper data entry includes:

Source document verification: This step usually gets skipped when doing your bookkeeping solely from bank feeds. Ideally, you want to make sure your data entry comes not from the bank feed, but from source documents like receipts or bills. This ensures that only valid business transactions are being entered into your books. Today’s bookkeeping software allows you to snap a photo of or scan in your source documents, and then OCR technology will extract the pertinent information and do much of the data entry for you. This means you can maintain source document verification while still taking advantage of the time-saving technology of your accounting software.

Accurate classification of transactions: Each entry into your bookkeeping system impacts at least two accounts in your business’s chart of accounts . Proper data entry — or data management if you rely on automation for your data entry — ensures that transactions are being posted to the correct accounts. Accurate classification of transactions enables you to produce financial management reports that can be used to make strategic business decisions.

Accurate identification of transactions: One downfall of some bookkeeping software is that the artificial intelligence behind it can make mistakes a human wouldn’t make while entering the data. The most common of these mistakes is assigning the wrong payee name to a transaction. You must make sure your transactions are being identified correctly. This is especially important for payments you make to vendors who will need a 1099 form at the end of the tax year.

2. Office management

Often, office management tasks like customer billing, paying vendors and payroll are considered to be bookkeeping tasks. Although accounts receivable, accounts payable and payroll do impact your books, some of these tasks can be managed by a person in your company other than your bookkeeper. Others, like payroll, can be outsourced to independent companies that specialize in the task.

If your bookkeeper bills your customers or pays your vendors and employees, make sure you have proper checks and balances in place to mitigate the possibility of fraud.

3. End-of-period closing

Your books should be closed at the end of each accounting period. End-of-period closing includes:

Reconciling all bank, credit card and loan accounts.

Reconciling accounts payable and accounts receivable.

Making any adjusting journal entries for prepaid revenue or expenses, depreciation or other unusual transactions.

Reviewing the financial statements for accuracy and completeness.

Locking the books so they can’t be changed after the end-of-period closing has been completed (optional, but highly recommended).

4. Internal management reports

Only an accountant licensed to do so can prepare certified financial statements for lenders, buyers and investors. However, your bookkeeper can generate internal management reports for your business.

There are three common reports your bookkeeper can prepare:

Your balance sheet is a snapshot of your assets, liabilities and equity as of a certain date.

Your income statement (also known as a profit and loss statement) details your business’s income and expenses for a period of time (a month, quarter, year, etc.). It shows whether your business has earned a profit or experienced a loss.

Your cash flow statement reconciles the income statement to the balance sheet and answers the question, “Where did the cash go?” for accrual-basis businesses.

Your bookkeeper might also prepare other auxiliary reports for your business, like accounts payable and accounts receivable aging reports . You can use these to make business decisions, but they should not be presented as audited, certified or official financial statements.

It’s important to note that not all lenders and investors require certified or audited financial statements. However, it’s still a good idea to ask an accountant to review your bookkeeper’s financial statements for accuracy and completeness prior to submitting them to a third party for consideration. And even if you’re not looking for funding, consider asking an accountant to review your financial statements at least once a year.

» MORE: Best online bookkeeping services

Bookkeeping is largely concerned with recordkeeping and data management. Bookkeepers make sure the information in the books is accurate and that the books are reconciled each month. In essence, they complete the first step in the accounting process.

Accountants, on the other hand, use the information provided by bookkeepers to summarize a business’s financial position and render financial advice to the business owner. Many accountants also prepare tax returns, independent audits and certified financial statements for lenders, potential buyers and investors.

Accountants typically have at least a bachelor’s degree in accounting, and many go on to become certified public accountants (CPAs) or certified management accountants (CMAs). Bookkeepers might also have degrees in accounting, but most have either technical certifications or on-the-job experience.

» MORE: Does your business need a bookkeeper or an accountant?

Bookkeeping has its own language, and bookkeepers and accountants sometimes forget business owners might not be fluent in it. Here are some common bookkeeping terms:

The accounting equation: The accounting equation is the key formula that keeps your books in balance. That equation is Assets = Liabilities + Equity. You can see the accounting equation in action in your business’s balance sheet.

Assets: What your business owns. Assets include cash, buildings, vehicles, patents and open invoices due from customers (accounts receivable), just to name a few.

Liabilities: What your business owes. Liabilities include credit card balances, amounts due to vendors (accounts payable), loan balances and tax liabilities that haven't yet been paid.

Equity: What is owed to the owner or shareholders of the business. Equity includes money paid in by the owner (contributions), money the owner has earned but not taken from the business (retained earnings) and other types of contributions like stock issued.

General ledger: The general ledger is where financial transactions are recorded and is made up of assets, liabilities, equity, income and expenses. These five types of accounts comprise the books for your business.

Chart of accounts: The list of categories you use to classify your business’s transactions. Think of the chart of accounts as a sort of filing system for your business’s transactions.

Debits and credits: Each bookkeeping transaction has two sides (remember, it’s called double-entry accounting). One side of the transaction is the debit side, and the other side is the credit side. Assets and expenses are increased by debits and reduced by credits. Income, equity and liabilities are increased by credits and reduced by debits.

Accrual basis and cash basis: Accrual-basis accounting recognizes income and expenses when they are incurred. Cash-basis accounting recognizes income when payment is received and expenses when payment is made. Check out NerdWallet’s accrual vs. cash basis accounting guide for more details.

Reconciliation: The process of verifying the balance of certain accounts (checking, credit cards, loans, etc.) against statements from an outside source, usually a bank.

Income: Money your business earns through sales.

Expenses: Money your business spends on operations and overhead.

Cost of goods: Money your business spends to produce income. Read NerdWallet’s cost of goods sold explainer to learn more.

Profit: What your business has earned after cost of goods and expenses are subtracted from income. Profit is not the same as cash on hand.

» MORE: NerdWallet’s top picks for accounting and bookkeeping apps

A version of this article was first published on Fundera, a subsidiary of NerdWallet.

On a similar note...

Bookkeeping – Definition, Importance, Types & Methods

What is bookkeeping and why is it important?

Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis. It can also refer to the different recording techniques businesses can use. Bookkeeping is an essential part of your accounting process for a few reasons. When you keep transaction records updated, you can generate accurate financial reports that help measure business performance. Detailed records will also be handy in the event of a tax audit.

This guide will walk you through the different methods of bookkeeping, how entries are recorded, and the major financial statements involved.

Methods of bookkeeping

Before you begin bookkeeping, your business must decide what method you are going to follow. When choosing, consider the volume of daily transactions your business has and the amount of revenue you earn. If you are a small business, a complex bookkeeping method designed for enterprises may cause unnecessary complications. Conversely, less robust methods of bookkeeping will not suffice for large corporations.

With this in mind, let’s break these methods down so you can find the right one for your business.

Single-entry bookkeeping

Single-entry bookkeeping is a straightforward method where one entry is made for each transaction in your books. These transactions are usually maintained in a cash book to track incoming revenue and outgoing expenses. You do not need formal accounting training for the single-entry system. The single-entry method will suit small private companies and sole proprietorships that do not buy or sell on credit, own little to no physical assets, and hold small amounts of inventory.

Double-entry bookkeeping

Double-entry bookkeeping is more robust. It follows the principle that every transaction affects at least two accounts, and they are recorded as  debits and credits . For example, if you make a sale for $10, your cash account will be debited for $10 and your sales account will be credited by the same amount. In the double-entry system, the total credits must always equal the total debits. When this happens, your books are “balanced.”

Using the double-entry method for bookkeeping makes more sense if your business is large, public, or buys and sells on credit. Enterprises often choose the double-entry system because it leaves less room for error. In a way, it ‘double-checks’ your books because each transaction is recorded as two matching but offsetting accounts.

Cash-based or accrual-based

The next step is choosing between a  cash or accrual basis for your bookkeeping. This decision will depend on when your business recognizes its revenue and expenses.

In  cash-based, you recognize revenue when you receive cash into your business. Expenses are recognized when they are paid for. In other words, any time cash enters or exits your accounts, they are recognized in the books. This means that purchases or sales made on credit will not go into your books until the cash exchanges.

In the accrual method, revenue  is recognized when it is earned. Similarly, expenses are recorded when they are incurred, usually along with corresponding revenues. The actual cash does not have to enter or exit for the transaction to be recorded. You can mark your sales and purchases made on credit right away.

Both a cash and accrual basis can work with single- or double-entry bookkeeping . In general however, the single-entry method is the foundation for cash-based bookkeeping. Transactions are recorded as single entries which are either cash coming in or going out. The accrual basis works better with the double-entry system.

How to record entries in bookkeeping

Generating financial statements like balance sheets, income statements, and cash flow statements helps you understand where your business stands and gauge its performance. For these reports to portray your business accurately, you must have properly documented records of your transactions. Keeping these records as current as possible is also helpful when reconciling your accounts.

Recording transactions begins with source documents like purchase and sales orders, bills, invoices, and cash register tapes. Once you gather these documents, you can record the transactions using journals, ledgers, and the trial balance . If you are a very small company, you may only need a cash register. The information can then be consolidated and turned into financial statements.

C ash registers

A cash register is an electronic machine that is used to calculate and register transactions. Usually, cash registers are used to record cash flow in stores. The cashier collects the cash for a sale and returns a balance amount to the customer. Both the collected cash and balance returned are recorded in the register as single-entry cash accounts. Cash registers also store transaction receipts, so you can easily record them in your sales journal.

Cash registers are commonly found in businesses of all sizes. However, they aren’t usually the primary method of recording transactions because they use the single-entry, cash-based system of bookkeeping. This makes them convenient for very small businesses but too simplistic for enterprises.

The journal

The journal is called the book of original entry. It is the place where a business chronologically records its transactions for the first time. A journal can be either physical (in the form of a book or diary), or digital (stored as spreadsheets, or data in accounting software). It specifies the date of each transaction, the accounts credited or debited, and the amount involved. While the journal is not usually checked for balance at the end of the fiscal year, each journal entry affects the ledger. As we’ll learn, it is imperative that the ledger is balanced, so keeping an accurate journal is a good habit to keep. This form is useful for double-entry bookkeeping.

A ledger is a book or a compilation of accounts. It is also called the book of second entry. After you enter transactions in a journal, they are classified into separate accounts and then transferred into the ledger. These records are transcribed by accounts in the order: assets, liabilities, equity, income, and expenses. Like the journal, the ledger can also be physical or electronic spreadsheets.

A ledger contains a chart of accounts, which is a list of all the names and number of accounts in the ledger. The chart usually occurs in the same order of accounts as the transcribed records.

Unlike the journal, ledgers are investigated by auditors, so they must always be balanced at the end of the fiscal year. If the total debits are more than the total credits, it’s called a debit balance. If the total credits outweigh the total debits, there is a credit balance. The ledger is important in double-entry bookkeeping where each transaction changes at least two sub-ledger accounts.

Trial balance

The trial balance is produced from the compiled and summarized ledger entries. The trial balance is like a test to see if your books are balanced. It lists the accounts exactly in the following order: assets, liabilities, equity, income, and expenses with the ending account balance.

An accountant usually generates the trial balance to see where your business stands and how well your books are balanced. This can then be cross-checked against ledgers and journals. Imbalances between debits and credits are easy to spot on the trial balance. It is not always error-free, though. Any miscalculated or wrongly-transcribed journal entry in the ledger can cause an incorrect trial balance. It is best to look out for errors early, and correct them on the ledger instead of waiting for the trial balance at the end of the fiscal year.

Financial statements

The next, and probably the most important, step in bookkeeping is to generate financial statements. These statements are prepared by consolidating information from the entries you have recorded on a day-to-day basis. They provide insight into your company’s performance over time, revealing the areas you need to improve on. The three major financial reports that every business must know and understand are the cash flow statement, balance sheet, and income statement.

The cash flow statement

The cash flow statement is exactly what its name suggests. It is a financial report that tracks incoming and outgoing cash in your business. It allows you (and investors) to understand how well your company handles debt and expenses. By summarizing this data, you can see if you are making enough cash to run a sustainable, profitable business.

The balance sheet

The balance sheet  reports a business’ assets, liabilities, and shareholder’s equity at a given point in time. In simple words, it tells you what your business owns, owes, and the amount invested by shareholders. However, the balance sheet is only a snapshot of a business’ financial position for a particular date. It must be compared with balance sheets of other periods as well. The balance sheet allows you to understand the liquidity and financial structure of your business through  analytics like current ratio, asset turnover ratio, inventory turnover ratio, and debt-to-equity ratio.

The income statement

The income statement ,  also called the profit and loss statement, focuses on the revenue gained and expenses incurred by a business over time. There are two parts in a typical income statement. The upper half lists operating income while the lower half lists expenditures. The statement tracks these over a period, such as the last quarter of the fiscal year. It shows how the net revenue of your business is converted into net earnings which result in either profit or loss. The income statement does not focus on receipts or cash details.

Bank reconciliation

Bank reconciliation is the process of finding congruence between the transactions in your bank account and the transactions in your bookkeeping records. Reconciling your bank accounts is an imperative step in bookkeeping because, after everything else is logged, it is the last step to finding discrepancies in your books. Bank reconciliation helps you ensure that there is nothing amiss when it comes to your money.

Why is it mandatory?

Bank reconciliation is a must because it:

• Provides the exact financial situation of your company
• Tracks cash flow accurately
• Helps detect fraud or bank errors

Stay on top of your bookkeeping

Proper bookkeeping drives your company to success. It is a foundational accounting process, and developing strategies to improve core areas of your business would be nearly impossible without it. Yet as important as bookkeeping is, implementing the wrong system for your company can cause challenges. Some companies can still use manual methods with physical diaries and paper journals. However, as technology gets more and more advanced, even smaller companies could get benefits from going digital. This is where a cloud bookkeeping solution like Zoho Books comes in. Zoho Books helps you keep accurate records of your business finances. It provides quicker and easier solutions for cash management, accounts payable/receivable, bank reconciliation, and generating financial statements. Further, its built-in automation takes care of mundane accounting tasks and helps you focus more on your business. Try our bookkeeping software for free and see how it can help your business maintain perfect bookkeeping records.

Related Posts

• 'It's a match!': A simple guide on how to do bank reconciliation
• Difference between single entry and double entry bookkeeping
• What Are the Different Accounting Methods?
• What is Journal & Ledger in Accounting and Bookkeeping?

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The Beginner's Guide to Bookkeeping

What Is Bookkeeping?

• Bookkeeping vs. Accounting
• Bookkeeping for Business
• Balancing the Books
• The Income Statement

Image by Daniel Fishel © The Balance 2019

Bookkeeping is the process of recording all financial transactions made by a business. Bookkeepers are responsible for recording, classifying, and organizing every financial transaction that is made through the course of business operations. Bookkeeping differs from accounting. The accounting process uses the books kept by the bookkeeper to prepare the end of the year accounting statements and accounts.

Very small businesses may choose a simple bookkeeping system that records each financial transaction in much the same manner as a checkbook. Businesses that have more complex financial transactions usually choose to use the double-entry accounting process.

Bookkeeping is the process of keeping track of every financial transaction made by a business firm from the opening of the firm to the closing of the firm. Depending on the type of accounting system used by the business, each financial transaction is recorded based on supporting documentation. That documentation may be a receipt, an invoice, a purchase order, or some similar type of financial record showing that the transaction took place.

The bookkeeping transactions can be recorded by hand in a journal or using a spreadsheet program like Microsoft Excel. Most businesses now use specialized bookkeeping computer programs to keep books that show their financial transactions. Bookkeepers can use either single-entry or double-entry bookkeeping to record financial transactions. Bookkeepers have to understand the firm's chart of accounts and how to use debits and credits to balance the books.

The bookkeeping process should allow for communication of the financial results of the firm at the end of the year for income tax purposes and the preparation of financial statements by the firm's accountant.

How Does Bookkeeping Differ From Accounting?

Bookkeeping in a business firm is an important, but preliminary, function to the actual accounting function . A bookkeeper collects the documentation for each financial transaction, records the transactions in the accounting journal, classifies each transaction as one or more debits and one or more credits, and organizes the transactions according to the firm's chart of account.

The financial transactions are all recorded, but they have to be summarized at the end of specific time periods. Some firms require quarterly reports. Other smaller firms may require reports only at the end of the year in preparation for doing taxes.

At the end of the appropriate time period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm. The year-end reports prepared by the accountant have to adhere to the standards established by the Financial Accounting Standards Board (FASB). These rules are called Generally Accepted Accounting Principles (GAAP).

What Do You Need to Set Up Bookkeeping for Your Business?

One of the first decisions you have to make when setting up your bookkeeping system is whether or not to use a cash or accrual accounting system . If you are operating a small, one-person business from home or even a larger consulting practice from a one-person office, you might want to stick with cash accounting.

If you use cash accounting, you record your transaction when cash changes hands. Using accrual accounting, you record purchases or sales immediately, even if the cash doesn't change hands until a later time, Sometimes firms start their business using cash accounting and switch to accrual accounting as they grow.

If you are going to offer your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system.

You also have to decide, as a new business owner, if you are going to use single-entry or double-entry bookkeeping. Single-entry bookkeeping is much like keeping your check register. You record transactions as you pay bills and make deposits into your company account. It only works if your company is relatively small with a low volume of transactions.

If your company is larger and more complex, you need to set up a double-entry bookkeeping system. Two entries, at least, are made for each transaction. At least one debit is made to one account, and at least one credit is made to another account. That is the key to double-entry accounting .

Companies also have to set up their computerized accounting systems when they set up bookkeeping for their businesses. Most companies use computer software to keep track of their accounting journal with their bookkeeping entries. Very small firms may use a basic spreadsheet, like Microsoft Excel. Larger businesses adopt more sophisticated software to keep track of their accounting journals.

Lastly, the business must set up its chart of accounts. The chart of accounts may change over time as the business grows and changes.

The chart of accounts lists every account the business needs and should have. Each account has a number and a name. Subaccounts are also listed.

Understanding Assets, Liabilities, and Equity When Balancing the Books

Effective bookkeeping requires an understanding of the firm's basic accounts. These accounts and their sub-accounts make up the company's chart of accounts. Assets , liabilities , and equity make up the accounts that compose the company's balance sheet.

Assets are what the company owns such as its inventory and accounts receivables. Assets also include fixed assets which are generally the plant, equipment, and land. If you look you look at the format of a balance sheet , you will see the asset accounts listed in the order of their liquidity. Asset accounts start with the cash account since cash is perfectly liquid. After the cash account, there is the inventory, receivables, and fixed assets accounts. Those are tangible assets. You can touch them. Firms also have intangible assets such as customer goodwill that may be listed on the balance sheet.

Liabilities are what the company owes like what they owe to their suppliers, bank and business loans, mortgages, and any other debt on the books. The liability accounts on a balance sheet include both current and long-term liabilities. Current liabilities are usually accounts payable and accruals. Accounts payable are usually what the business owes to its suppliers, credit cards, and bank loans. Accruals will consist of taxes owed including sales tax owed and federal, state, social security, and Medicare tax on the employees which are generally paid quarterly. Long-term liabilities have a maturity of greater than one year and include items like mortgage loans.

Equity is the investment a business owner, and any other investors, have in the firm. The equity accounts include all the claims the owners have against the company. The business owner has an investment, and it may be the only investment in the firm. If the firm has taken on other investors, that is reflected here.

In bookkeeping, you have to balance your books at the end of the year. The bookkeeper has to keep careful track of these items and be sure the transactions that deal with assets, liabilities, and equity are recorded correctly and in the right place. There is a key formula you can use to make sure your books always balance. That formula is called the accounting equation:

Assets = Liabilities + Equity

The accounting equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Liabilities are claims based on what you owe vendors and lenders. Owners of the business have claims against the remaining assets (equity).

Income Statement and Bookkeeping: Revenue, Expenses, and Costs

The  income statement is developed by using revenue from sales and other sources, expenses, and costs . In bookkeeping, you have to record each financial transaction in the accounting journal that falls into one of these three categories.

The information from a company's balance sheet and income statement gives the accountant, at the end of the year, a full financial picture of the firm's bookkeeping transactions in the accounting journal.

Revenue is all the income a business receives in selling its products or services. Costs, also known as the cost of goods sold, is all the money a business spends to buy or manufacture the goods or services it sells to its customers. The Purchases account on the chart of accounts tracks goods purchased.

Expenses are all the money that is spent to run the company that is not specifically related to a product or service sold. An example of an expense account is Salaries and Wages or Selling and Administrative expenses.

A bookkeeper is responsible for identifying the accounts in which transactions should be recorded. For example, if the business makes a cash sale to a customer and your business uses double-entry bookkeeping, you would record the cash received in the asset account called Cash and the sale would be recorded in the revenue account called Sales.

Key Takeaways

• Bookkeeping is the process of keeping track of every financial transaction made by a business firm from the opening of the firm to the closing of the firm.
• Accounting analyzes, reviews, interprets, and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm.
• In cash accounting, you record your transaction when cash changes hands. Using accrual accounting, you record purchases or sales immediately, even if the cash doesn't change hands until a later time,
• Effective bookkeeping requires an understanding of the firm's basic accounts. These accounts and their sub-accounts make up the company's chart of accounts.
• A business's six basic accounts are Assets, Liabilities, Equity, Revenue, Expenses, and Costs.

SCORE. " 10 Bookkeeping Basics You Can't Afford to Ignore ."

Bench Co. " Accounting 101: 8 Steps to Set Your Business Up for Success ," Page 8.

Bench Co. " Accounting 101: 8 Steps to Set Your Business Up For Success ," Pages 5-7.

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What is bookkeeping definition, types & importance.

What is bookkeeping? Is it the same as accounting? People are often confused and think the terms are interchangeable. They aren’t! In this article, you’ll learn all about bookkeeping. It will discuss what bookkeeping means, types of bookkeeping and why it matters for your business. Here’s everything you need to know!

Here’s What We’ll Cover:

What Is Financial Bookkeeping?

Why is bookkeeping important for a business, how do you record financial transactions, top 5 bookkeeping apps for business owners, what is the difference between bookkeeping and accounting, the different types of bookkeeping, what is petty cash bookkeeping, is it hard to be a bookkeeper, key takeaways.

Financial bookkeeping is the record-keeping aspect of accounting . It includes recording all daily transactions. These are individual entries in journals or ledgers that summarize each business transaction. Accountants use these journals to prepare your financial statements. These are reports containing a summary of the business’s income and expenses for a specific timeframe. This accounting period could be weeks, months or years. It will reflect in your accounts receivable and accounts payable.

Bookkeeping isn’t just an inconvenience. It’s crucial to the success of your business! Bookkeeping is important because it documents every transaction that occurs within your company. This information allows you to make smart decisions for future growth and planning. It could result in improving processes or making purchasing decisions.

Good bookkeeping can reveal issues with your business. These issues might be preventing you from climbing the ladder to success! For example, let’s say that your business is losing money each month or that your overhead costs are too high. You can make changes by improving processes or evaluating purchases. However, you also need the right type of bookkeeping software to evaluate this information correctly.

There are different bookkeeping methods. Each one of these is designed to track specific types of business transactions. For example, there’s cash basis accounting and accrual basis accounting. You need to decide which accounting method you will use for your company. The most commonly used accounting method is the accrual method. Either way, it’s critical to have an accurate balance sheet and income statements. 

If you’re unsure about this, consult a professional. A financial advisor or accountant can provide you with some guidance on the best type of bookkeeping software for your business.

Now that you know what bookkeeping is and why it’s important, let’s talk about what software you should be using. There are lots of great choices for bookkeeping software depending on your business’s needs. Here are five of the best:

FreshBooks is another great bookkeeping app for small businesses that need time-tracking capabilities. It’s an easy-to-use program that will let you set up recurring invoices for repeat clients. It’s a great choice if you need to save time by making your invoices as automatic as possible!

• QuickBooks Self-Employed

This is the perfect choice for people who work as freelancers or run a one-person shop. This is because QuickBooks Self-Employed offers 100% coverage for your tax prep so you won’t have to spend extra time filing taxes! It’s a great choice for anyone who needs a simple bookkeeping solution that will allow them to manage their expenses and income quickly.

TSheets is another great choice for businesses that work with employees and need to track their time. It’s an easy-to-use solution that makes it quick and simple to manage employees’ hours.

Xero is a great option if you deal with any international transactions or have multiple currencies. It offers real-time cloud bookkeeping, and also gives you access to certified accountants. It’s a great choice for any business that needs financial support and advice from its bookkeeping app. You can also quickly compare Xero with FreshBooks to make better business choice.

Wave provides a cloud-based solution for businesses looking to do their bookkeeping themselves. They’ll handle its complicated tax prep services for you, too! It’s a great choice if you’d like to manage your finances from anywhere and won’t require additional assistance.

Financial bookkeeping and accounting both record financial transactions. They’re not the same thing though! Financial bookusing software will help you track your business’s income and expenses. Accounting software is what you’ll use to prepare your financial statements. These statements show your company’s profit and loss over a specific period of time. Accounting software also makes it easier to forecast future growth and plan for the coming months or years!

Here are some other differences between bookkeeping and accounting:

• Accounting creates financial reports
• Bookkeeping records transactions
• Accounting is for your internal use only
• Bookkeeping can be completed by an accountant or yourself

Now that you know what bookkeeping is, let’s talk about the different types of bookkeeping. There are two main types: single-entry and double-entry .

Single-entry systems only record one side of a transaction. For example, if you paid $100 for supplies this month using your credit card, your expenses account would increase by $100.

Double-entry systems record both sides of a transaction. If you used your credit card to purchase supplies, then your cash account would decrease by $100 and your expenses account would increase by $100.

Petty cash is a small amount of money that your business uses for different purposes throughout the day. This could be as simple as buying doughnuts for your office or grabbing lunch during an impromptu meeting. To keep track of these expenses, you’ll need to use the petty cash bookkeeping method.

Petty cash bookkeeping is a single-entry system that simply records the total amount of money you have in your petty cash drawer. If you’re using an actual cash box for this, it’s best to keep track of each entry. This way, you can determine how much change remains at the end of the day.

Much of the work that goes into bookkeeping is more administrative than anything else. For example, your bookkeeper will need to make sure that every transaction in your business’s financial records has an entry. This could range from paying employees or purchasing supplies for your office.

It can be difficult to get used to doing this on a daily basis. It’s easy to make small mistakes and forget a few transactions every once in a while. This is why it’s important to choose the right bookkeeping software for your business. These types of programs will do all of this work automatically, so you won’t have to keep track of everything!

All in all, bookkeeping simply means tracking your business’s expenses and income. There are a variety of methods for this, including single-entry and double-entry systems.

Today’s better bookkeeping software makes it easier to prepare financial reports for your accountant or tax professional. You can use these reports to help you make informed decisions about the future of your company.

Hopefully this article provides some insights in bookkeeping. It should give you a great starting point for perfecting your bookkeeping strategy.

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What is Bookkeeping?

• What Is Bookkeeping in Accounting?
• What Is the Difference Between Bookkeeping and Accounting?
• What Are the Objectives of Bookkeeping?
• What Is the Importance of Bookkeeping?
• What Are the Types of Bookkeeping?
• What Does a Bookkeeper Do?
• Can You Automate Bookkeeping?
• How Can You Learn Bookkeeping?

What Is Bookkeeping? | 8 Bookkeeping Basics

1. what is bookkeeping in accounting, 2. what is the difference between bookkeeping and accounting, 3. what are the objectives of bookkeeping.

• Objective 1 – Accurately record the financial transactions that result from business activities in accordance to best practices.
• Objective 2 – Communicate the financial results the business activities yielded.

4. What Is the Importance of Bookkeeping?

• Records of their financial transactions
• Financial statements
• Tax compliance
• Proper cash flow management
• It’s required by the government ― The government, specifically the IRS, requires businesses to keep track of their financial records . Bookkeeping is the answer to this need.
• It improves cash flow ― The financial statements the bookkeeper produces help the business manage and improve their cash flow. They can also strategically plan based on financial data and make informed decisions that’ll benefit the business.
• It provides the data that investors look for ― Investors want to know how a business is faring to determine their investment’s value. When the business is able to project how much money enters and leaves at a given time, it can increase and maintain its pool of investors.
• Makes tax filing easier ― Having organized and accurate books can cut back the time and effort your client spends on tax filing. The accountant can focus on finding opportunities for tax deductions, which can save both money and time.
• It helps the auditing process go smoothly ― At some point, businesses go through internal or external auditing. If they practice good bookkeeping, their financial information will be readily available for checking and they can avoid penalties.
• It gives the business owner peace of mind ― When the finances are well-taken care of, business owners can focus on other aspects of their work that’ll allow them to grow. Plus, they no longer need to be anxious when auditing season comes.

5. What Are the Types of Bookkeeping?

• Cash sales journal ― This is where you enter the revenue the business receives.
• Cash disbursements journal ― This is where you enter the expenses paid.
• Bank statements ― The journal entries should align with the bank statements.

What is an accrued expense? This refers to an expense entered into the bookkeeping system at the purchase date, not on the payment date.

• Accounts payable and receivable
• Loan tracking
• Journal entries
• Manual ― This is the traditional way that’s paper-based.
• Computerized ― This is done through the use of accounting and bookkeeping software.

6. What Does a Bookkeeper Do?

• Computation
• Maintaining accurate financial records
• Communicating financial issues
• Overseeing the inventory and cash flow
• Managing the budget
• Paying suppliers, customers, and loans
• Generating financial reports
• Excellent data entry skills
• Good communication skills
• Bookkeeping know-how
• Attention to detail and organization
• Good understanding of the micro and macro perspectives in a business
• Discipline and commitment
• Willingness to learn

7. Can You Automate Bookkeeping?

8. how can you learn bookkeeping.

• Frequently Asked Questions
• How To Make Clients Line Up And Beg You To Serve Them

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Home Accounting Bookkeeping: Definition, Importance, Types and Tasks

Bookkeeping: Definition, Importance, Types and Tasks

Tally Solutions | Updated on: February 14, 2023

--> published date: | updated on: --> <--, what is bookkeeping, why bookkeeping is important for all business, tasks and examples of the bookkeeping system.

• Accounting period

Types of Bookkeeping

Method of bookkeeping, principles of bookkeeping.

• How to record entries in bookkeeping

Posting entries and documentation

Influence of bookkeeping on the chart of accounts, frequently asked questions.

Bookkeeping is a process of recording and organizing all the business transactions that have occurred in the course of the business.  Bookkeeping is an integral part of accounting and largely focuses on recording day-to-day financial transaction of the business.

All the financial transactions such as sales earned revenue, payment of taxes, earned interest, payroll and other operational expenses, loans investments etc. are recorded in books of accounts.

The way the bookkeeping is managed determines the accuracy of the overall accounting process that is been followed by the business. Thus, bookkeeping ensures that the record of financial transactions are up-to-date and more importantly, accurate

Just like to prepare a report, you need a source of data, bookkeeping is a source that gets summarized into the financial statements or any other accounting report that you see. With bookkeeping tracks and records all the financial transactions, it becomes the starting point of accounting. No bookkeeping = No accounting.

Thus, it becomes important for businesses, small or big to have bookkeeping in place.

The following are the importance of bookkeeping:

• Bookkeeping helps to keep track of receipts, payments. Sales, purchases and record of every other transaction made from the business.
• It helps to summarize the income, expenditure and other ledger records periodically.
• It provides information to create financial reports which tells us specific information about the business as how much profits the business has made or how much the business is worth at a specific point of time.

With the definition of bookkeeping, it’s clear that the bookkeeping task involves all that is required to track, record and organize all the financial transaction that has occurred in the business.

The person is responsible for managing bookkeeping usually entrusted with the responsibility of tracking all the transaction related to business. The following are the bookkeeping tasks examples:

• Billing for goods sold or services provided to clients.
• Recording receipts from customers.
• Verifying and recording invoices from suppliers.
• Recording payment made to suppliers and so on…

 Are accounting and bookkeeping different? Read ‘ Bookkeeping and Accounting’

Bookkeeping  period

The accounting period that a business entity chooses for its business becomes part of its bookkeeping system and is used to open and close the financial books. The accounting period affects all aspects of the company’s finances, including taxes and analysis of your financial history.

In most of the countries, the accounting period is the financial year which starts from 1st April and ends on 31st March of every year. In some countries like the Middle East (UAE, Saudi, Bahrain etc) the calendar year is used as an accounting period i.e. 1st January to 31st December.

Business entities choose from two types of bookkeeping systems, although some entities use a combination of both.

The single-entry system of bookkeeping requires recording one entry for each financial activity or transaction. The single-entry bookkeeping system is a basic system that a company might use to record daily receipts or generate a daily or weekly report of cash flow.

The double-entry system of bookkeeping requires a double entry for each financial transaction. The double entry system provides checks and balances by recording corresponding credit entry for each debit entry. The double-entry system of bookkeeping is not cash-based. Transactions are entered when a debt is incurred or revenue is earned.

Read ' Types and Methods of Bookkeeping System' to know more.

The cash-based system of accounting records financial transactions when payment is made or received. This system recognizes revenue or income in the accounting period in which it is received and expenses in the period in which they are paid.

The accrual basis method, which is favoured under the generally accepted  principals of accounting,  record income in the accounting period in which it is earned and records expenses in the period incurred.

To ensure the all the transactions are recorded and organized systematically, bookkeeping principles are applied. The following are the bookkeeping principle

• Revenue principle
• Expense principle
• Matching principle
• Cost principle
• Objectivity principle

Read ' Principles of Bookkeeping' to know more.

How to record entries in Bookkeeping

Entries in bookkeeping are recorded in the archaic method of journal entry . Here, the respective individual or accountant manually enters the account numbers and performs individual action of debits and credits for each transaction. This approach is time-consuming and subject to error, and so is usually reserved for adjustments and special entries.

All Financial transactions undertaken by a business entity are posted in ledgers using the information from receipts and other documentation. Ledgers summarize the transactions recorded.  Most bookkeeping software  automates the posting of transaction details to respective ledgers and reports.

Most entities post financial transactions daily, while others post in batches or outsource the posting activity to accounting professionals. Posting entries regularly helps in generating on-time financial statements or reports.

Financial transactions documentation is an important element of a company’s bookkeeping system. It requires maintaining files of receipts and other documents. The duration period for maintaining documentation records depends on your company policy and legal or tax requirements.

A business entity can create more comprehensive bookkeeping system when it includes accounts for each area of financial transactions.  Financial accounts  are grouped or categorized based on the nature of accounts or impact on the financial statements. This usually includes balance sheet accounts and income statement accounts.

Balance sheet  accounts are assets, liabilities, and stockholder or owner equity. Income statement accounts are operating and non - operating revenues, expenses, gains and losses.

What exactly does a bookkeeper do?

A bookkeeper is primarily responsible to record and track a company's financial transactions which include, purchases, sales and expenses. These transactions are first recorded as general ledger, which are later used while preparing a balance sheet.

What is the difference between Accounting and Bookkeeping?

Accounting is a broad subject. It calls for a greater understanding of records obtained from  bookkeeping  and an ability to analyze and interpret the information provided by bookkeeping records.

Bookkeeping is the recording phase while accounting is concerned with the summarizing phase of an  accounting system . Bookkeeping provides necessary data for accounting and accounting starts where bookkeeping ends.

Take a look at the difference between Bookkeeping and Accounting

Is it hard to be a Bookkeeper?

No. Bookkeeping is a rather simple and straight forward process which can be easily learnt while you're on-the-job. 

What are the 2 kinds of Bookkeeping?

The single-entry and double-entry bookkeeping systems are the two methods commonly used. While each has its own advantage and disadvantage, the business has to choose the one which is most suitable for their business.

More on types of Bookkeeping system

Read More on Bookkeeping

Bookkeeping Principles , Types of Bookkeeping System , Elements of Bookkeeping , Bookkeeping Vs. Accounting , Difference between Accountant & Bookkeeper , Basic Accounting Assumptions Basis Bookkeeping

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What Is Bookkeeping? A Small-Business Guide

No matter the industry or size, all businesses need to track and manage their financial operations. Bookkeeping is integral to that mission, ensuring that a company’s transactions — everything from paying suppliers to receiving payments from customers — are properly recorded every day. Small businesses typically have less of a financial cushion and are more easily affected by dips in cash flow than their larger counterparts. Effective bookkeeping helps small businesses stay on top of their spending, keeps financial records organized and improves decision-making, among many other benefits that lead to a financially healthy outcome.

Put simply, bookkeeping brings structure and transparency to a business’s financial operations and is part of the overall accounting function. This article explains how, including an overview of the bookkeeping process, the advantages of effective bookkeeping and how automated accounting software helps companies simplify and speed up their bookkeeping tasks.

What Is Bookkeeping?

Bookkeeping is the process of recording, organizing and maintaining a company’s financial records. This can be performed manually by recording transactions in a written journal or spreadsheet or using accounting software — an approach that is increasingly popular among small businesses because it gives them more time to concentrate on growth. The bookkeeper’s job is broad, with daily duties ranging from paying suppliers, to delivering financial reports, to billing clients, to recording receipts and tracking accounts receivable.

Key Takeaways

• Bookkeepers are responsible for recording their business’s daily financial transactions, for use by accountants for higher-level financial operations.
• The benefits of effective bookkeeping include detailed financial records, improved reporting and simplified regulatory compliance.
• Accounting software cuts time and cost from the bookkeeping process while reducing the risk of human error.

Bookkeeping Explained

Bookkeeping handles the daily maintenance of a business’s books and records, with every financial transaction diligently recorded by one or more bookkeepers. Unlike accountants, who analyze their company’s financial data from the highest level, bookkeepers are historians of transactions. They build, maintain, organize, sort, store and ensure the completeness of a business’s financial records. Recorded transactions cover every payment, sale and loan that a business takes on, and can be easily retrieved for use in the preparation of taxes, financial statements and other reports.

Bookkeeping tasks vary based on a company’s needs and accounting processes. For instance, a small, privately owned business may focus on maintaining simple financial records, like invoices, payroll, bank statements and tax returns, whereas a larger company may have more complex bookkeeping records as it grows and takes on additional lines of business with different delivery models. In a public company, bookkeepers must follow more specific guidelines as set forth by the U.S. Generally Accepted Accounting Principles (GAAP) , especially when it comes to financial reporting and governance.

That said, some bookkeeping tasks are common to all sizes of businesses. Here are a few examples:

Record payables and receivables:

Recording accounts payables (AP) and receivables (AR) , along with processing related invoices, is a core bookkeeping function. Every business should record its sales, purchases, expenses and cash transactions in a general ledger.

Reconcile accounts:

Bookkeepers make sure that the financial accounts in their spreadsheets or accounting software are accurate and up to date. That requires regular reconciliation of financial accounts against third-party documents, such as a company’s credit card statements and bank statements.

Determine unadjusted trial balance:

At the end of an accounting period, a bookkeeper closes the account balances and adds up credits and debits. If the dollar amounts don’t balance, the bookkeeper will have to track down the errors and offset them with adjusting entries.

Bookkeeping Process

The bookkeeper’s mandate is to record all daily financial transactions and make it easy for accountants and other business stakeholders to find the information they need. Generally speaking, the bookkeeping process follows these steps:

When a financial transaction is completed, a bookkeeper assesses and assigns it to the right accounts in the company’s journal using debits and credits.

The bookkeeper then transfers transaction details to the general ledger, which tracks every transaction completed by the business over a given accounting period.

At the end of the accounting period, the bookkeeper closes the financial books and makes sure every debit transaction has an equal credit transaction before the data can be used in financial statements.

There are two primary bookkeeping methods: single-entry and double-entry .

Single-entry bookkeeping

As the name implies, single-entry bookkeeping involves one account entry for each transaction recorded in a business’s financial books. It is used by businesses that do their accounting on a cash basis — reflecting when cash actually changes hands — as opposed to an accrual basis (more on this distinction soon).

Double-entry bookkeeping

Most companies use the double-entry accounting method, whereby every transaction affects at least two accounts in their financial records – a debit account and a credit account. Bookkeepers must preserve a balance between debits and credits. Public organizations in the U.S. are required to use double-entry accounting in compliance with GAAP.

Components of the Bookkeeping Process

The bookkeeping process involves a half-dozen moving pieces and ensuing financial documents. Ensuring accuracy, timeliness and consistency in every place a transaction must be recorded is essential to a successful bookkeeping operation.

Chart of accounts

A chart of accounts lists every account in the business’s general ledger. An account is a financial record that tracks the activity of an individual asset, liability, equity, revenue and expense. Accounts are categorized based on a coding system that makes it easy to identify them.

Journal entries

The goal of bookkeeping is to present an accurate, real-time view of a business’s financial standing. Journal entries are used to record the details of each financial transaction, including how much was credited or debited to a particular account. Entries are eventually posted to the business’s general ledger.

General ledger

The general ledger is a numbered record of a company’s financial transactions and is used for tracking purposes and preparing three core financial statements, listed below. Under the double-entry bookkeeping system, a debit to one general ledger account must be balanced with an equal and opposite credit in another account.

Cash flow statement

A cash flow statement documents the cash (and cash equivalents) moving into and out of a business over a given time period. Cash flow statements help companies assess their liquidity.

Income statement

An income statement reports a business’s revenue, expenses, gains, losses and earnings for a specific accounting period. Some companies refer to their income statement as an earnings statement or a profit and loss statement , P&L for short.

Balance sheet

A company’s balance sheet provides a full picture of its financial position at a given moment in time. It tracks every asset, liability and equity.

Cash Basis vs. Accrual Basis

Which accounting method is best? The answer depends on how a business wants to time its revenue and expenses. Cash basis accounting — the simpler of the two methods — records transactions when money changes hands on a given account, such as when the business pays a supplier for service rendered. This approach is attractive to small businesses because it ensures that their financial statements closely reflect their current cash position.

Accrual-based accounting records expenses when they are incurred and sales when they are earned, regardless of when payment is exchanged. This is useful for businesses that extend credit to their customers or use credit to purchase goods and services from suppliers, as well as for companies that hold large volumes of inventory. In these cases, there is a time gap between when a sale or purchase is made and when subsequent payment occurs, making the cash-basis method of bookkeeping less accurate and thus less useful. 

The accrual-based method is considered the gold standard because it more accurately reflects a business’s financial position. What’s more, public companies are obligated to use this approach, as is any business that must produce GAAP-compliant financial reports.

Bookkeeping vs. Accounting

Bookkeeping lays the groundwork for accounting . The main difference between the two is their focus. Bookkeepers are tasked with day-to-day tactical responsibilities. They log and track a business’s financial transactions — ensuring that records are accurate and organized — reconcile accounts and close the books at the end of an accounting period. Meanwhile, accountants have a strategic, big-picture role and typically oversee bookkeepers. Accountants analyze and interpret the information prepared by bookkeepers to generate the business’s financial statements, tax returns and other high-level financial reports. The insight they communicate to business stakeholders about the company’s financial health is used to inform decision-making.

Another difference is the required level of education. Bookkeepers don’t necessarily need to possess a college degree or certification to gain employment, though one or both can certainly help them stand out when applying for jobs. Accountants, however, need a bachelor’s degree in accounting, finance, business or another mathematics-related field. Many go on to become licensed certified public accountants (CPAs), which requires passing a rigorous, four-part exam .

Why Businesses Need Bookkeeping

Bookkeeping oversees the daily documentation of a business’s financial activities as journal entries, which are then posted to the general ledger. This complete view of every business account is used by stakeholders to understand the company’s financial position and, in turn, make strategic business decisions regarding cash flow, budgeting and more.

In addition, up-to-date books are helpful when a business is applying for loans or building a business case for potential investors. They’re also integral to the creation of time-sensitive financial statements and reports, and to ensure compliance with specific tax codes and/or the U.S. Securities and Exchange Commission (SEC) requirements.

In the event of an audit, bookkeeping helps businesses back up their expense claims and applications for tax deductions with granular financial records.

Balancing the Books: Assets, Liabilities and Equity

Bookkeepers are responsible for closing a company’s books. To do so, total assets must balance the sum of its liabilities and shareholders’ equity. This is known as the accounting equation, and the information appears on the company’s balance sheet.

• Assets: Assets refer to anything a business owns. They include current assets, like cash or a retailer’s inventory, that are typically used within a year’s time; and fixed assets , including tangible assets, like an office building or machinery, and intangible assets, like patents or trademarks acquired from a third party. Fixed assets are also known as long-term assets because they generally have a useful life of more than one year.
• Liabilities: Liabilities refer to financial obligations a business must pay. Common liabilities include bank loans, money owed to suppliers and unpaid rent for office space or storage facilities. Short-term liabilities are financial obligations that must be paid within 12 months, like employee wages. Long-term liabilities, such as a mortgage, have a maturity of more than one year.
• Equity: Also known as shareholders’ equity (SE) or net worth, reflects the value of a company that remains after subtracting liabilities from assets.

Advantages of Bookkeeping

Not only is bookkeeping crucial to support core financial processes, but it also serves to make accountants’ lives a little easier. Among its advantages:

• Detailed records: Detailed, centralized financial records make it easier to oversee and track business accounts, which ultimately speeds reporting. Comprehensive records also simplify financial or tax audits because relevant information can be located more quickly and at lower cost.
• Improved compliance: Competent bookkeepers make sure their work complies with the latest legal and accounting requirements applicable to their business and industry, thereby avoiding fees or penalties for being out of compliance. That means all accounts, ledgers and financial statements adhere to the latest tax codes, SEC provisions and any accounting regulation specific to a business’s industry.
• Better planning: Solid bookkeeping data leads to better accounting and business decisions based on a complete understanding of the company’s performance. With a detailed record of their business’s accounts, finance teams can be confident in the data used to inform their reporting and future planning.
• Transparent reporting: Bookkeepers keep their business’s general ledger updated at all times. For their part, accountants can present that data to business stakeholders when creating financial reports, be it for a monthly close or ad-hoc information requests.
• Faster analyses: Accurate, up-to-date records help accountants do their job more quickly, whether they are creating financial statements or helping to develop a budget for a future project.

Challenges of Bookkeeping

As with all financial processes, bookkeeping comes with its challenges. This is especially true in resource-constrained small businesses. Below are three of the most common challenges associated with bookkeeping.

• Making time: Small companies don’t necessarily have dedicated bookkeepers on their payrolls, which means owners or other employees must take time away from other core business functions to handle bookkeeping tasks. Alternatively, they can use accounting software or hire an external consultant to take bookkeeping tasks off their plates. Bookkeeping consultants are also less expensive than accountants, in most cases.
• Using records passively: Many businesses view bookkeeping as a tick-box exercise that keeps them compliant and helps them to file accurate tax returns. But that’s only half the story. Up-to-date financial records help key stakeholders make informed business decisions based on a better understanding of their organization’s financial health.
• Getting bogged down in manual processes: Manual processes are the enemy of accurate bookkeeping for a growing business. With an ever-expanding list of transactions to record, companies can get only so far with paper records and spreadsheets. Software-based bookkeeping cuts significant time and effort from the bookkeeping process while reducing the risk of human error.

Common Bookkeeping Abbreviations

Financial documents are full of abbreviations. Below are some of the most common abbreviations used in bookkeeping and accounting records, in alphabetical order:

• AE: Accrued expenses
• AP: Accounts payable
• AR: Accounts receivable
• ATB: Adjusted trial balance
• BS: Balance sheet
• CA: Current assets
• CAP: Capital
• CF: Cash flow
• CL: Current liabilities
• COA: Chart of accounts
• COGS: Cost of goods sold
• CR: Credits
• FA: Fixed assets
• FE: Fixed expenses
• GL: General ledger
• LTL: Long-term liabilities
• NI: Net income
• OE: Operating expenses or owner’s equity
• P&L: Profit and loss statement (also known as the income statement )
• PPE: Property, plant and equipment
• TB: Trial balance
• VE: Variable expenses

History of Bookkeeping

Bookkeeping has been around for thousands of years. Archeological records reveal ancient civilizations used some form of bookkeeping as early as 6000 B.C. Modern bookkeeping can be traced back to the 15th century, when Italian mathematician Friar Luca Pacioli developed the first double-entry system.

No surprise, bookkeeping has evolved tremendously since that time, especially with the invention of computers in the 20th century and the more recent uptake of automated, cloud-based accounting software. Companies have also changed the media they use to keep records, in line with the shift from a cash-based economy to one built on credit and digital transactions.

Petty cash books

Petty cash is a small amount of cash that companies keep on hand to pay for incidental or emergency expenses. A traditional petty cash book is a physical ledger that records all a business’s cash expenditures. Modern petty cash accounting uses spreadsheets or accounting software. The need for petty cash is becoming a thing of the past, as most businesses make their purchases with a credit card or via bank transfer.

Before the age of software, businesses would record financial transactions chronologically in a handwritten journal. It was common to use different journals for different transactions, i.e., one for purchases, another for sales and another for cash payments and receipts. Then the entries would be added to the organization’s general ledger. These days, much of the process is digital.

Daybooks are a remnant from the days of physical journals. To avoid recording every single financial transaction in a single journal, businesses staged the process by recording the day’s credits and debits in a smaller daybook before transcribing them in an overarching bookkeeping journal.

Bookkeeping Examples

At its core, bookkeeping offers businesses a way to track their credits and debits. Bookkeepers document financial transactions, recording each credit or debit in the relevant account and posting those entries in the business’s general ledger. At the end of an accounting period, they ensure that all accounts are balanced — i.e., that every debit has an equal and opposite credit.

One simple way to log these activities is with T-charts, also known as T-accounts. Each chart represents a specific account, named at the top. Below the account’s name are two columns, one for debits and one for credits, with space for bookkeepers to log the date of each transaction during the accounting period.

Consider a wholesale distributor that orders $50,000 of  inventory on Jan. 1, 2023. The order is logged as a $50,000 debit in the T-chart for “Inventory.” Meanwhile, a $50,000 credit is added to the “Accounts Payable” T-chart, representing the liability taken on by the business until the inventory is paid for. The “Accounts Payable” chart gets a second entry for a $50,000 debit, bringing the overall balance to $0. Finally, once the vendor bill is paid, it gets logged in the company’s “Cash” T-chart as a $50,000 credit entry.

Automate Bookkeeping With NetSuite

Bookkeepers increasingly use accounting software to perform their jobs. The accounting workflows in NetSuite’s cloud accounting software automate many bookkeeping tasks, making it easier to close the company’s books and  wrap up the accounting cycle. These tasks include recording financial transactions, preparing customer invoices, processing vendor bills and reconciling bank and credit card statements — all of which are time-consuming and prone to error when handled manually. GL entries and account balances are updated in real time, rather than in batches, which improves financial visibility, helps accelerate the financial close process, and improves the accuracy of financial statements.

Is QuickBooks the right bookkeeping solution for you?

Bookkeeping is an essential accounting process that handles the detailed recording, organizing and tracking of a company’s day-to-day financial transactions. It is a time-consuming, labor-intensive activity that demands nothing less than 100% accuracy so business leaders and their stakeholders have confidence in their financial statements. Automated accounting software reduces the time and complexity of maintaining a company’s books. It’s also a key component of NetSuite ERP , which integrates, streamlines and automates essential business functions, providing real-time visibility into the company’s financial performance.

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Bookkeeping FAQs

What exactly does a bookkeeper do?

Bookkeepers record, organize and track a company’s financial transactions. Their duties range from invoicing customers and paying suppliers to closing the books at period end.

What is the difference between accounting and bookkeeping?

Bookkeepers are financial record-keepers, logging every transaction and balancing every account to ensure records are clear, accurate and up to date. Accountants interpret these records to prepare budgets financial statements and other important documents. Bookkeeping is primarily tactical, whereas accounting is mostly strategic.

What qualifications do you need to be a bookkeeper?

Bookkeepers don’t necessarily need to possess a college degree or certification to gain employment, though one or both can certainly help them stand out when applying for jobs. Accountants, however, need a bachelor’s degree in accounting, finance, business or another mathematics-related field. Many go on to become licensed certified public accountants (CPAs), which requires passing a rigorous, four-part exam.

What is an example of bookkeeping?

Bookkeeping tasks vary tremendously. One example is the reconciliation of general ledger cash balances against bank and credit card statements to ensure that every business transaction has been accurately recorded.

13 Bookkeeping Hacks to Save Time in 2022

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What is Bookkeeping and Why is it Critical to Every Business?

No matter what industry your business is in, you need to track your money. It’s virtually impossible to run a business without knowing your financial health.

That’s where bookkeepers come in. They track all of the economic activity that flows in and out of your business.

But proper bookkeeping is more than entering numbers into a software program or an Excel spreadsheet. In this guide, we’ll break down everything a bookkeeper does and why you can benefit from hiring one.

What is Bookkeeping?

Bookkeeping involves recording and storing your business’ financial transactions and retrieving financial information wherever necessary. 

Financial transactions are recorded in the form of journal entries, a two (or more) part entry in the General Ledger (GL) that consists of at least one debit to one account and at least one credit to another. Hence, the term: double-entry bookkeeping.

A Short History of Bookkeeping

Bookkeeping dates back to the Babylonians in 2600 BCE. They used styli to record transactions in slabs of clay. You can then fast-forward to Renaissance Italy, where Luca Pacioli — the “Father of Accounting” — formalized the double-entry accounting system (debits and credits) used by Venetia merchants around 1494.

In colonial America, bookkeepers used “wastebooks.” These were the temporary ledgers in which bookkeepers made chronological transactions. They then transferred these transactions to a permanent journal/ledger, and the “wastebooks” were thrown out — hence the name.

Bookkeepers vs. Accountants

Although bookkeepers and accountants have some overlap, accounting is a higher-level and more subjective task. The latter can perform several functions that the former cannot.

Bookkeepers only record financial transactions in the correct accounts. They then pass these off to the accountant, who uses the information for a variety of purposes:

• Adjusting entries
• Tax planning and filing
• Financial statement preparation (although bookkeepers may prepare financial statements in smaller businesses)
• Financial analysis
• Assisting with decision-making

Given the nature of the work, bookkeepers don’t need an advanced education — not even a Bachelor’s degree. 

Accountants, on the other hand, generally have at least a four-year degree. Many of them also acquire certifications — such as the Certified Public Accountant designation — through rigorous testing and continued education.

This isn’t to say that bookkeeping isn’t important. Bookkeepers help you track and see the data, whereas accountants help you grasp that data and understand how it affects your business.

Bookkeeping Tasks

Since bookkeepers oversee the recording of a company’s day-to-day transactions, their work is heavy on the data-entry — it’s quite detail-oriented work. Most of their work consists of creating and posting journal entries to the general ledger and proper subledgers.

Bookkeepers can take on other roles within your business, depending on your needs.

• Preparing financial statements: In smaller businesses, bookkeepers can prepare financial statements to save you money.
• Tax preparation: In some cases, bookkeepers may handle some basic tax preparation, such as gathering documents, but you’ll need a CPA or EA for filing the return and tax planning.
• Providing pertinent financial information to your CPA
• Processing payroll
• Performing bank reconciliations
• Handling mail
• Collecting and remitting sales tax
• Delivering banks deposits

How to Choose a Bookkeeper

You have several options for choosing a bookkeeper.

• DIY: Handle your bookkeeping yourself using software. This is the least expensive option, but you may not have the time to do your bookkeeping yourself.
• Hire an in-house bookkeeper: Keep a bookkeeper on staff as an employee. You’ll have to pay them a salary and benefits — you’ll also have training and hiring costs. Small businesses generally don’t need a full-time bookkeeper.
• Outsource to a firm: Hire a bookkeeping service to perform your bookkeeping for you. Gain instant access to bookkeeping experts. It can seem more expensive than hiring in-house at first, but you can customize your services to your needs.
• Hybrid: A combination of an outsourced firm and software. Usually, these firms leave you to handle the basics while they handle complex tasks like bank reconciliations, payroll, and sales tax.

How a Bookkeeper Helps Your Business

Every company needs to track their finances, but your time may best be spent looking for growth opportunities. By handing your bookkeeping off to someone else, you’ll experience several benefits:

• Increase your time: You’ll have more time to run your business when a bookkeeper takes care of your financial records.
• Better decision-making: Thorough and up-to-date financial records that the bookkeeper provides helps you make better decisions.
• Improve cash flows: Bookkeepers can ensure your debtors pay their invoices. Your bookkeeper can also identify areas in which you can cut costs.
• Compliance: Bookkeepers ensure you stay compliant with the law by keeping up with changes in financial regulations.
• Maintain strong supplier relationships: Your bookkeeper will ensure timely and accurate payments to your suppliers.
• Fraud reduction: An honest bookkeeper will be able to identify suspicious transactions so that you can stop fraud early.
• Easier tax time: Your bookkeeper can get the right information to your tax preparer for a faster and simpler tax season.
• Easier audits: With a bookkeeper handling your documentation, an IRS audit will be a lot less stressful.

Bookkeeping isn’t the most glamorous job in the world, but it’s critical to business success. A good bookkeeper works hard to keep your financial data accurate and get to the bottom of suspicious transactions. They may not drive revenue directly, but their work and insights are key to growing your business.

Tired of spending valuable hours on your bookkeeping? When you work with CFO Hub, you can turn your attention to business growth, knowing that our experts are keeping accurate and up-to-date books. Contact us today for your free, no-obligation consultation.

What does a bookkeeper do?

Keeping the books is just one of the tasks modern bookkeepers might handle. Here’s a breakdown of bookkeeping duties.

Responsibilities of a bookkeeper

Bookkeepers are responsible for providing accurate, up-to-date financial information about a business. They’re always taking the pulse of a business.

Most often, their reports go to business owners and managers to help them make decisions. Some bookkeepers, however, are actually involved in strategy development.

Bookkeepers may also share some jobs with accountants, such as the preparation of annual financial reports and tax returns.

Bookkeeping duties

The two foundational tasks in small business bookkeeping are data entry and bank reconciliation. Without these, all other bookkeeping tasks fall over. Let’s walk through the core duties, common additional duties, and advanced bookkeeping.

Core duties

• Data entry: Recording financial transactions and balancing the books. Learn more. .
• Bank reconciliation: Cross-referencing the books against bank statements and other source documents to confirm accuracy. Learn more .
• Monthly reports: Summarizing the business’s financial position. Learn more .

Additional duties

• Accounts receivable (and credit control): Creating and sending invoices, and following up to get them paid. Learn more .
• Accounts payable: Making sure invoices from suppliers are accurate and paid in a timely manner. Learn more .
• Payroll: Calculating pay and deductions. Learn more .

Advanced duties

• Tax filing: Preparing tax returns. Learn more .
• End of year reporting: Assisting with annual income statement and balance sheet reports.
• Business strategy: Creating budgets and forecasts, and advising on how to improve the business.
• Business process: Reviewing, researching and implementing software solutions and internal controls to streamline the business and enhance performance.
• Training: Working with staff on best practice bookkeeping and use of software solutions.
• Virtual office: Providing a full-service virtual office, for example telephones, postal address, and email communications.
• Liaison: Meeting with accountants, on behalf of their clients, about financials and tax queries. Acting on behalf of the client with the tax authorities.

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

What is bookkeeping?

Whether you’re bookkeeping for a family business, or planning a career in it – this is a good place to start learning.

What does bookkeeping involve? What’s the end product? And how does it compare to accounting? We take a look.

With double-entry bookkeeping, you create two accounting entries for each of your business transactions. Find out why.

With their variety of skills and tasks, bookkeepers come in many shapes and sizes. You may even be one and not know it.

Download the guide about bookkeeping

Find out what bookkeepers do, and get an intro to double-entry bookkeeping. Fill out the form to receive the guide as a PDF.

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Bookkeeping

Key differences, which one do you need, career paths, the bottom line, bookkeeping vs. accounting: what's the difference.

Bookkeeping vs. Accounting: An Overview

The distinctions between accounting and bookkeeping are subtle yet essential. Bookkeepers record a business's day-to-day financial transactions . Accountants focus more on the big picture. The two careers are similar, and accountants and bookkeepers often work side by side. These careers require many of the same skills and attributes. However, significant differences exist, like work conducted in each career and needed to be successful. The following analysis compares the education requirements, skills required, typical starting salaries, and job outlooks for accounting and bookkeepers.

Key Takeaways

• The job titles bookkeeper and accountant are used interchangeably but are distinct and have different requirements.
• Bookkeeping is where accountants generally start their careers as the barriers to entry are lower and pay is decent.
• Accountants traditionally acquire their CPA certification and a master's degree.
• Bookkeepers line up all the small pieces of a company's financial records, and accountants view and arrange those pieces.
• Accounting often requires more education than becoming a bookkeeper, where most accountants hold undergraduate or graduate degrees or even MBAs in accounting, economics, or finance.

You can become a bookkeeper right out of high school if you prove you are good with numbers and have strong attention to detail. In fact, many aspiring accountants work as bookkeepers to get a foot in the door while still in school. Bookkeepers who excel at their jobs are also sometimes promoted to accounting positions, even if they lack the level of education the company typically prefers.

Bookkeepers are commonly responsible for recording journal entries and conducting bank reconciliations . A bookkeeper must be able to shift focus easily and catch tiny, hidden mistakes in a budget or invoice. They often bookkeepers work a few jobs for various clients if they work as a consultant.

Unlike careers such as law and medicine, in which state licensing boards determine how much education you need, with accounting and bookkeeping, the companies doing the hiring decide what to require of candidates.

As an accountant , you may have to crunch numbers, but those are not the only skills needed. It is important to possess sharp logic skills and big-picture problem-solving abilities, as well. While bookkeepers make sure the small pieces fit properly into place, accountants use those small pieces to draw much more significant and broader conclusions.

Some of the key tasks for accountants include tax return preparation, conducting routine reviews of various financial statements, and performing account analysis. Another key responsibility for accountants includes conducting routine audits to ensure that statements and the books are following ethical and industry standards.

As an accountant, you may work for a company or yourself, and there are opportunities for accountants in many industries like law, insurance and health, small business, and, of course, tax accounting firms. Accountants work with numbers and financial details all day long. Therefore, those who do not like math, get confused easily when making simple calculations, or are generally opposed to number crunching should not apply.

With bookkeepers, there are a lot of minutiae involved, and keen attention to detail is paramount. Accountants, on the other hand, tend to use the bookkeeper's inputs to create financial statements and periodically review and analyze the financial information recorded by bookkeepers. They conduct audits and forecast future business needs. We've listed some of the key differences when it comes to the requirements and job market for each.

Required Education

Both accountants and bookkeepers have a college education, although not all jobs require one. As previously mentioned, a bookkeeper can be hired out of high school, but that isn't always the case for every employer. Bookkeepers may hold an associate degree, as well.

Bookkeepers may start working for a small business to gain experience and then go back to school for a degree in accounting or finance. Enrolling in one of the best online bookkeeping classes is a smart way for those interested in this career to bolster their existing financial knowledge.

If you are interested in becoming an accountant, it may be beneficial to your career to become a certified public accountant (CPA) , which has its own exam. Earning this designation is a common goal of many accountants. You must have a minimum of 150 postsecondary education hours, or what amounts to a bachelor's degree in accounting, and an additional 30 hours of graduate work. Most CPA candidates go ahead and finish their master's degrees.

There are various career paths for accountants (and some for bookkeepers), from working as a forensic accountant to becoming a financial auditor or an enrolled agent.

Job Outlook

There are critical differences in job growth and salaries between the two. Growth for accountants and auditors is expected to continue for the next several years. The Bureau of Labor Statistics (BLS) expects 6% job growth in this field from 2021 to 2031.

However, bookkeeping and accounting clerk jobs are expected to decline, with the BLS projecting a 5% fall in jobs over the same period. The BLS notes that job growth for accountants should track fairly closely with the broader economy. However, bookkeepers will face pressure from automation and technology that will reduce the demand for such workers.

Starting Salaries and Benefits

Both careers cover a broad gamut of starting salaries. This is particularly true for accountants. How much you make as a first-year accountant depends mainly on the specific career path you pursue. While accounting can be a lucrative long-term career, most accountants, unlike corporate attorneys or investment bankers, do not command huge salaries during the first few years.

Public accounting generally pays the most to a candidate right out of school. In particular, the big four firms of Ernst & Young, Deloitte, KPMG, and PricewaterhouseCoopers offer larger salaries than mid-size and small firms. Depending on the city, you can expect to earn between $40,000 and $60,000 your first year as a Big Four accountant. While the companies do not publish salaries on their websites, the benefits can be a large draw. For example, KPMG offers employees up to 25 days of paid vacation time, telecommuting opportunities, and a robust health insurance package.

Mid-size and small public accounting firms pay, on average, about 10% less than these firms. If you choose to work for a company internally instead of in public accounting, the starting salary range is very broad. In most cases, private companies do not pay more than the Big Four for young accountants with little experience.

Bookkeepers often get paid hourly wages rather than annual salaries . The average wage for someone new to the business is $21.70 per hour. This is the equivalent of around $45,000 per year, assuming a 40-hour workweek. The advantage of hourly pay is you receive 1.5 times your average wage for hours worked more than 40 per week. In bookkeeping, extra hours are typical during the busy tax season of January to mid-April.

Skills Needed

Accountants and bookkeepers work with numbers and financial data all day long. Therefore, those who do not like math, get confused easily when making simple calculations, or are generally opposed to number crunching should not apply.

As a bookkeeper, your attention to detail must be almost preternatural. Careless mistakes that seem inconsequential at the time can lead to bigger, costlier, more time-consuming problems down the road. You must be able to multitask. Rarely does a bookkeeper work on one big project for an eight-hour shift; instead, a typical workday involves juggling five or six smaller jobs. Nearly all bookkeeping is done using computerized accounting software and programs, so bookkeepers should be comfortable learning new technology if not proficient in it.

As an accountant, you must pay attention to figures and financial details, but it is more essential to possess sharp logic skills and big-picture problem-solving abilities. While bookkeepers make sure the small pieces fit correctly into place, accountants use those small pieces to draw much more significant and broader conclusions about a company's finances.

Rather your business is large or small, you need an understanding of your accounting needs . As a business leader, you should have a good idea of which professionals best suit the needs of your company. As such, it's important to know whether you need a bookkeeper or an accountant to keep track of your affairs. That may be tough since the roles and responsibilities may intertwine. So here are a few tips to help you decide.

You may want to consider a bookkeeper:

• For recording daily transactions
• If you have small inventories and a less complex business structure
• To satisfy a conservative salary budget (bookkeepers make less than accountants)

Choose an accountant:

• To help monitor and record complex transactions
• If you have larger inventories
• If you're able to pay more

It is not an unusual career move for a bookkeeper to gain experience at a job, study, get certified, and work as an accountant.

For a long-term career, accounting offers much more upward mobility and income potential. The education required to be competitive in the field is greater, but the payoff down the road can be considerably higher.

Bookkeeping is a great starting point if you are interested in the field but not fully committed and want to test the waters. You may also be an ideal bookkeeping candidate if you want a good job with a respectable wage and decent security but may not be looking for a long-term career. Bookkeeping offers much lower barriers to entry, and the competition you face in the job search is less fierce.

Enrolled Agent

An enrolled agent (EA) is a tax professional authorized by the United States government. Their job is to advocate and assist taxpayers when they have issues with the Internal Revenue Service. To become one, you have to either have worked at the IRS or pass an EA examination.

Bookkeepers who are interested in switching jobs but do not have a college degree might consider becoming an EA after a stint with the IRS. This job doesn't require a college degree, only five years of tax experience with the IRS. All EAs must have 72 hours of continuing education every 36 months. If you are already a CPA, you can act as an enrolled agent without passing the exam. Only a federal license is required.

Financial Auditor

As a financial auditor , you may work as an external or internal auditor. If you are an external auditor, you will most likely have a job at a public accounting firm, and you will need to have a CPA license, plus a college degree, and often a master's degree.

An internal auditor—one who will work as part of a small company, keeping its books and financial operations—won't usually need a CPA license, and with experience and solid skillset, may only need a bachelor's degree in finance or accounting, or business.

Forensic Accountant

Forensic accounting is a highly specialized field of accounting. A forensic accountant's job is to investigate, audit, and prove the accuracy of financial documents and dealings. These accounting detectives' work often centers around legal issues. There are opportunities for forensic accountants in many industries, like nonprofit work, government and law-enforcement agencies, law firms, and large corporations.

To become a forensic accountant , you must usually have a CPA certification, plus earn a certified fraud examiner exam, which covers the legal side of fraud, criminology, ethics, investigation techniques, and how to go through financial transactions.

In addition, you must be a member of the Association of Certified Fraud Examiners. In most cases, employers want to hire someone with a bachelor's degree, and a master's degree may help boost your earnings.

How Can a Bookkeeper Become an Accountant?

Bookkeepers are usually responsible for documenting or checking financial data for a company or client, including checks received or written, invoices, cost spreadsheets, and monthly or quarterly revenue. A bookkeeper is skilled at keeping documents and tracks a wide net of financial information.

When a bookkeeper wants to leap to being an accountant, they will need to take the CPA exam, plus earn a bachelor's degree (most of the time), if they do not have one already. Fifty states plus the District of Columbia require accountants to earn 150 credit hours of college education before taking the national four-part Uniform CPA exam.

Is Bookkeeping Hard to Learn?

If you are proficient and comfortable using mathematics and computing figures, plus punctual, organized, and detail-oriented, it is not hard to learn how to be a bookkeeper. Of course, a background in accounting practices will help you ride out a learning curve as a new bookkeeper.

Which Accounting Jobs Are in Demand?

According to Northeastern University in Boston, and the U.S. Department of Labor's Occupational Handbook, some of the most in-demand accounting jobs include comptroller, accounting manager, senior tax accountant, and internal auditors.

People often confuse bookkeepers and accountants—and with good reason. While there are certain similarities and overlaps between the two, there are distinctions that set these two roles apart. Bookkeepers don't necessarily need higher education in order to work in their field while accountants can be more specialized in their training. Another key difference is their pay scale. Because bookkeepers tend to work for smaller companies, they may not be paid as much as accountants. Knowing the differences between the two can help people find their niche in the industry and can give guidance to companies on who to hire for their needs.

American Institute of Certified Public Accountants. " 150 Hour Requirement for Obtaining a CPA License ."

U.S. Bureau of Labor Statistics. " Accountants and Auditors ."

U.S. Bureau of Labor Statistics. " Bookkeeping, Accounting, and Auditing Clerks ."

KPMG. " Investing In Your Success ."

Glassdoor. " Accounting Salaries ."

U.S. Bureau Labor of Statistics. " Occupational Employment and Wages, May 2020 ."

Internal Revenue Service. " Maintain Your Enrolled Agent Status ."

Internal Revenue Service. " Enrolled Agent Information for Former IRS Employees ."

Association of Certified Fraud Examiners. " About the ACFE ."

AIPCA. " The Uniform CPA Examination ," Page 9.

Northeastern University. " Top 12 In-Demand Finance and Accounting Careers ."

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Boomer's Blueprint: AI and transformation … who is responsible?

The CPA firm landscape is undergoing a significant transformation with the integration of artificial intelligence. Some CPAs will resist, while others embrace and encourage innovation. The same can be said for firm clients.

This article explores how AI is revolutionizing tax compliance-related services, expanding opportunities, and improving firm operations. This is being done while also improving the client experience and enhancing job satisfaction for tax professionals.

Most CPAs have seen the power of ChatGPT, Claude, Google Gemini, and Microsoft's Copilot and the progress these large language models have made in the past year. The growth and capabilities of AI are exponential, rather than incremental, and will transform the accounting profession in many ways. Key differentiators in a firm's ability to transform are leadership and mindset. Does your firm's leadership embrace or resist AI? Are they willing to change?

The following examples demonstrate how firms are benefiting from and exploring AI in their tax practices. The use cases and tools are expanding daily. (FutureTools.io by Matt Wolfe is a great resource for reviewing the many tools available. It saves considerable research time and provides thought-provoking dialogue of use cases. As of the writing of this article, Matt listed 2,675 tools, with more coming daily.)

1. AI's role in data aggregation. AI-powered tools are reshaping the data aggregation process for tax preparation (business and individual). Advanced algorithms can efficiently collect, organize and validate financial data from multiple sources. This automation minimizes manual effort, reduces errors, and ensures compliance. It can also have a major impact on the review process, which is often one of the primary chokepoints in the preparation process. TaxCaddy is one proven example that has standardized and improved the collection of data, documents and client communications.

2. Streamlining tax preparation with AI. AI continues to play a crucial role in tax preparation beyond data aggregation. AI-driven software analyzes financial data, identifies deductions, and optimizes tax strategies based on current regulations. Think augmentation rather than replacement of team capacity and capabilities. AI impacts internal and outsourced workflow. Remember, technology is a member of your team that shows up and gets smarter every day.

3. Improving the tax professional's experience and job satisfaction. AI improves job satisfaction by automating tasks and enhancing accuracy. Good examples are scheduling and filing extensions. By freeing up time from manual and administrative work, AI allows preparers to focus on higher-value activities such as planning and client communications.

More AI-driven analytics enable CPAs to anticipate client needs and wants associated with providing advisory and consulting services. Just because you can prepare tax returns does not mean that you should. Are you focusing on your unique abilities and adding value to your clients?

Working within one's unique abilities reduces burnout and provides life-long learning and growth opportunities. Stop and think; less is often more. Most firms have too many 1040 clients impacting their capacity to deliver higher-valued services to their best clients.

4. Enhancing the client experience. The integration of AI enhances the client experience throughout the tax preparation process. Clients benefit from a structured and simplified data collection process and real-time tracking of the process. AI-driven software provides transparency and fosters trust and confidence in the relationship.

Additionally, AI enables personalized insights and recommendations beyond filing instructions. AI software can also assist the profession in asking appropriate questions. Advisory and consulting services are based on questions. Value is created through leadership, relationships and creativity.

5. Improving operations. Billing and collection processes impact the firm's results and the client's experience. To price, invoice and collect effectively, firms must define their process and automate it.

Taking partners out of the process and utilizing a chief value officer will enhance revenue, improve cash flow, improve client satisfaction, and allow AI-driven tools to accelerate the process, freeing up professionals' time to better communicate and serve the client. AI can also assist in the generation of engagement letters and the use of electronic signatures, further enhancing efficiency and client convenience.

The inventory of AI tools is increasing daily, yet for firms to take advantage of the power of AI requires the appropriate mindset, toolsets, and skill sets. The convergence of technological tools, continuous process improvement, and change management determine success and the adoption timeline. "Who is responsible?" is more important than "How are we going to leverage AI?" The right "who" knows or will determine how and where to implement artificial intelligence in your firm.

Your mindset regarding vendors will also determine the timeline and results. Viewing technology vendors as business partners rather than suppliers is a big step forward. Incumbent vendors are looking for ways to increase value to their customers. Think in terms of learning and applying. This is a fast-paced journey.

Think — plan — grow!

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Published:  March 4, 2024 Contributors:  Tom Krantz, Alice Gomstyn

PCAF is a global coalition of financial institutions working to create a synchronized approach for assessing and disclosing  greenhouse gas (GHG) emissions  associated with their loans and investments. 

As a non-profit entity, PCAF provides financial institutions with guidance on  business sustainability  initiatives such as: 

• Assessing climate-related risks in line with the  Task Force on Climate-related Financial Disclosures  (TCFD)
• Setting science-based targets (SBTs) using the sectoral  decarbonization  approach developed by the Science Based Targets Initiative (SBTI)
• Aligning their portfolios with the Paris Climate Agreement 

By taking such measures, financial institutions have the potential to pave a path toward sustainable finance. They can also gain a more comprehensive view of their portfolios’ carbon footprints by adopting PCAF’s GHG accounting standard, the Global GHG Accounting and Reporting Standard for the Financial Industry (the Standard). 

PCAF was founded in 2015 by 14 Dutch financial institutions under the leadership of ASN Bank. The initiative stemmed from a pledge by the Dutch government that called on banks  to lead the shift to a low-carbon economy by measuring and disclosing the GHG emissions associated with their loans and investments. Over time, more financial institutions from the Netherlands joined in an effort to develop open-source methodologies to measure the GHG emissions of various asset classes, ranging from equity to commercial real estate. 

In 2018, PCAF expanded to North America. With Amalgamated Bank at the helm, 12 other financial institutions tailored PCAF’s GHG accounting methodologies for the North American market. In 2019, a total of 28 banks from the Global Alliance for Banking on Values (GABV) adopted the PCAF’s approach to disclosing GHG emissions. From there, ABN AMRO, Triodos Bank and ASN Bank joined Amalgamated Bank and the GABV in making PCAF a global initiative.

In addition, at the request of banks and investors, PCAF broadened its work to cover more aspects of the financial industry. Since 2021, the partnership has created GHG emissions measurement and reporting methods for capital markets activities and for the insurance industry.

Today, more than 400 financial institutions have aligned their GHG assessment and disclosure with the PCAF’s accounting standards. 1

According to PCAF: “Banks represent most of the available capital globally. Since the Paris Climate Agreement the largest banks have invested more than USD 4.6 trillion into the fossil fuel sector." 2

It’s been proven that burning fossil fuels releases carbon emissions that accelerate  climate change , threatening the well-being of the global population. The financial industry can set an example for other industries by prioritizing GHG emissions transparency across its investment activities, prompting GHG emissions accountability to evolve into a common practice across markets. 

At the heart of PCAF is its Global Core Team, a diverse collective made up of 14 members representing various regions and PCAF signatories. Together, they developed the Standard with the goal of harmonizing  GHG accounting  and  reporting .

The Standard is comprised of three parts: A, B and C. Each part has been reviewed by the GHG Protocol, an organization that provides a global framework for measuring and managing GHG emissions. The parts all conform with the requirements of the framework's Corporate Value Chain ( Scope 3 ) Accounting and Reporting Standard, for Category 15 investment activities.

The most updated standard calls for banks to apply GHG accounting to seven asset classes: listed equity and corporate bonds; business loans and unlisted equity; project finance; mortgages; commercial real estate; motor vehicle loans and sovereign debt. Measuring financed emissions allows banks to make transparent  climate disclosures  on their GHG emissions exposure, identify climate-related transition risks and opportunities and set a baseline for emissions in alignment with the Paris Climate Agreement. 3

Within the financial sector, capital markets play a crucial role in fueling economic activity, including much of the activity that generates GHG emissions. PCAF advises that “[t]o help limit climate change and achieve net-zero targets by 2050, Capital Markets need to redistribute a large amount of capital to green and sustainable companies.” Part B of the Standard provides a mechanism for financial institutions to provide transparency around the GHG emissions associated with their work facilitating capital markets transactions, including the issuance of stocks and bonds. 4

The insurance (and reinsurance) industry can play a key role in supporting decarbonization initiatives. Demand from the re/insurance industry and other stakeholders for tools to measure and report GHG emissions is increasing. Part C of the Standard provides guidance on the measurement and disclosure of GHG emissions associated with two segments: commercial lines and personal motor lines. 5

Additional asset classes and case studies are expected to be added as PCAF evolves. By following PCAF’s guidance on financed, facilitated and insurance-associated emissions, financial institutions can effectively report to stakeholders like the  Carbon Disclosure Project  (CDP) while informing climate action and strategies. Such reporting and transparency may also incentivize financial insitutions to develop new financial products to help support the transition to a  net-zero  emissions economy.

The PCAF Standard is being implemented in five regions: Africa, Asia-Pacific, Europe, Latin America and North America. Each region has its own regional implementation team with a comprehensive governance structure. Each team also receives technical assistance so they can implement GHG accounting and reporting at no cost. 

PCAF has indicated that as more metrics and insights come to light, the lessons learned through regional implementation will be used to refine the Standard and further the coalition’s mission: to facilitate the financial industry’s alignment with the Paris Climate Agreement. 

Simplify the capture, consolidation, management, analysis and reporting of your ESG data.

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The Sustainable Accounting Standards Board (SASB) is a standards-setting organization for disclosing sustainability risks and opportunities.

CSR reporting is the practice of reporting an organization’s performance of non-financial metrics, providing transparency on the organization’s impact on society and the environment.

The Task Force on Climate-related Financial Disclosures (TCFD) seeks to keep investors better-informed about companies' climate-related risks.

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1   The Global GHG Accounting and Reporting Standard Part B: Facilitated Emissions, First Edition  (link resides outside ibm.com), PCAF, December 2023

2   About PCAF  (link resides outside ibm.com), PCAF

3   The Global GHG Accounting and Reporting Standard Part A: Financed Emissions, Second Edition  (link resides outside ibm.com), PCAF, December 2022

4   The Global GHG Accounting and Reporting Standard Part B: Facilitated Emissions, First Edition  (link resides outside ibm.com), PCAF, December 2023

5   The Global GHG Accounting and Reporting Standard Part A: Financed Emissions, First Edition  (link resides outside ibm.com), PCAF, November 2022

FTX's victims may get all their money back. The judge sentencing Sam Bankman-Fried might not care.

• Sam Bankman-Fried bilked FTX customers out of more than $8 billion, according to prosecutors.
• FTX bankruptcy lawyers say they could get all their money back.
• The judge sentencing Bankman-Fried on Thursday has to grapple with that gulf — as well as his autism diagnosis.

According to federal prosecutors, Sam Bankman-Fried orchestrated one of the biggest criminal frauds in the history of the world. Customers of FTX, his cryptocurrency exchange, lost more than $8 billion, they say.

According to his lawyers, FTX's customers may get all their money back.

Their dispute leaves a four-decade gap between how long prosecutors want the ex-crypto boss to serve in prison and the much lower 6 ½-year sentence his lawyers are fighting for.

The judge who's set to sentence Bankman-Fried on Thursday is being asked to address this vast gulf. He's expected to decide how much money the convicted fraudster should be held accountable for. He's also being asked to weigh the entire circumstances of Bankman-Fried's life, including whether he should be treated differently than a run-of-the-mill fraudster because of an autism diagnosis.

Bankman-Fried's criminal case is inextricable from the complicated bankruptcy of FTX, the cryptocurrency exchange he was convicted of using as a vehicle for his fraud.

He was arrested in December 2022, just about a month after FTX collapsed and declared insolvency under a new CEO, the seasoned executive John J. Ray III, who was tasked with shepherding the ruins of FTX through the bankruptcy court. Since the arrest, the criminal cases against Bankman-Fried and his coconspirators — other executives who have pleaded guilty and largely cooperated with prosecutors — worked on a parallel legal track to FTX's bankruptcy proceedings.

As Bankman-Fried sat in his parents' home, under house arrest, he purported to make efforts to help out with the bankruptcy process. Offering to help identify FTX's assets, he repeatedly emailed Ray, who spurned him .

Shortly after he took over the company, Ray told the court there was "a complete absence of trustworthy financial information." Bankman-Fried complained about being shut out, insisting to journalists and friends that he could have helped locate FTX's scattered assets.

US District Judge Lewis Kaplan, who presides over Bankman-Fried's criminal case in lower Manhattan, precluded all talk of the bankruptcy proceedings from the monthlong trial. Bankman-Fried's criminal culpability rested on intent to defraud, not how much money customers actually lost, he ruled.

All jurors heard about was how Bankman-Fried used billions of dollars in customer money, not any steps he might have taken to recover it later.

The complicated math of FTX's losses

In November, jurors found Bankman-Fried guilty on all counts, including fraud, conspiracy, and two different kinds of money laundering.

According to prosecutors, Bankman-Fried was responsible for more than $11 billion in fraud overall between FTX customers and investors in FTX and Alameda Research. He spent it all on flashy advertising, real estate, tech investments, political contributions, and charity donations.

In the months after the trial ended, things started looking better for FTX's customers. The artificial-intelligence boom was in full swing, and a $500 million investment that Bankman-Fried made using their money was looking prescient. Within the last month, some cryptocurrency prices — after diving with FTX's collapse — reached new highs. In a January 31 bankruptcy hearing, an FTX debtor lawyer told the bankruptcy court that FTX customers and creditors "will eventually be paid in full."

While the jury wasn't given the chance to consider it, Kaplan himself is soon getting to decide whether the fact that Bankman-Fried's victims may get their money back — and how he did or didn't contribute to that — will factor into his sentence.

Judges ultimately have wide latitude in what they're allowed to consider while imposing a sentence. Sarah Krissoff, a white-collar defense attorney at Cozen O'Connor, says that whether they should consider the intended loss or genuine loss is a hot legal dispute that will probably end up in front of the US Supreme Court.

If Bankman-Fried went to trial an hour's drive away, in a New Jersey district court, the judge would have worked under the jurisdiction of the United States Third Circuit Court of Appeals and considered actual loss. But because he was tried in New York, controlled by the Second Circuit, the intended loss is what matters, Krissoff says.

"If you intend to steal $5 million, and you steal $2, it's still driven by that $5 million number," Krissoff, who was a former federal prosecutor in New York, told Business Insider.

In their sentencing submission , prosecutors say Bankman-Fried shouldn't be rewarded for how he spent other people's money. Bankman-Fried's attorneys have argued that the lack of customer losses should cut in his favor, but prosecutors say that doesn't account for the efforts of FTX's bankruptcy lawyers, who had to liquidate real estate, cancel contracts, and sue to claw funds back from K5 Global, a celebrity-connected investment firm that Bankman-Fried invested money into.

Ray, who's stewarding FTX through its bankruptcy process, wrote in his own scathing letter to the judge that Bankman-Fried left the company as "a metaphorical dumpster fire." "The value we hope to return to creditors would not exist without the tens of thousands of hours that dedicated professionals have spent digging through the rubble of Mr. Bankman-Fried's sprawling criminal enterprise to unearth every possible dollar, token or other asset that was spent on luxury homes, private jets, overpriced speculative ventures, and otherwise lost to the four winds," he wrote.

Ray also said many of the things Bankman-Fried spent customer money on couldn't be recovered.

"There are plenty of things we did not get back, like the bribes to Chinese officials or the hundreds of millions of dollars he spent to buy access to or time with celebrities or politicians or investments for which he grossly overpaid having done zero diligence," he wrote. "The harm was vast. The remorse is nonexistent."

The recovered calculations, too, distort how much money customers are actually getting back.

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FTX's depositors would be repaid based on the dollar value of their cryptocurrency holdings at the time that FTX declared bankruptcy.

So if someone purchased one bitcoin on FTX's exchange at the price of $60,000, and then bitcoin dropped to $20,000 in November of 2022 — which can be at least partly attributed to the chaos of FTX at the time — their credit is worth $20,000. It doesn't matter if the price of bitcoin has risen back to over $60,000 since then. The creditor would get $20,000, not $60,000.

Rachel Maimin, a former New York federal prosecutor, said the value of FTX's assets after bankruptcy ultimately had nothing to do with Bankman-Fried.

"It has nothing to do with the circumstances of the offense itself," Maimin, now a white-collar defense attorney at Lowenstein Sandler LLP, told BI. "It's totally separate from that. This is something that happened almost by luck after the offense was complete."

Bankman-Fried's lawyers and family want the judge to consider autism symptoms

Bankman-Fried's lawyers and family members have made other entreaties to the judge . They have said he exhibits behavioral characteristics associated with neurodivergent people and have asked Kaplan to judge him accordingly.

"I genuinely fear for Sam's life in the typical prison environment," Barbara Fried, Bankman-Fried's mother, wrote in a letter to the judge. "Sam's outward presentation, his inability to read or respond appropriately to many social cues, and his touching but naive belief in the power of facts and reason to resolve disputes, put him in extreme danger."

Neurodivergence can manifest in several ways, including autism, dyslexia, or attention-deficit/hyperactivity disorder. In their sentencing submission, his defense attorneys attached a letter from Hassan Minhas , a psychiatrist who said he met with Bankman-Fried for four hours in July 2023 and diagnosed him with autism spectrum disorder.

Minhas wrote that Bankman-Fried "does not have any intellectual deficits and in-fact he presented as intellectually gifted" but "demonstrated deficits in being able to read social-cues, and appropriately respond to them." He added that while Bankman-Fried had "made attempts to compensate" for those deficits, he'd probably exhibit those symptoms for the rest of his life.

"The deficits persist and may present in various settings as him being socially awkward or inappropriate, not understanding social nuance, or responding in ways that may be perceived as off-putting to others," Minhas wrote.

About 2.2% of adults in the US have autism, according to the Centers for Disease Control in 2017. Minhas said the "social deficits" associated with autism would make it more challenging to interact with prison staff and other incarcerated people. He recommended that Bankman-Fried get access to psychotherapy and that personnel be trained to "inform their interactions with him."

Bankman-Fried's lawyers also included a letter from the psychiatrist George Lerner, who described himself as the "in-house coach at FTX" and wrote that the former FTX executive was "on the autism spectrum."

"I believe that his psychiatric conditions led others to misinterpret his behavior and motivations," Lerner said.

Prosecutors, in their 116-page sentencing memorandum, didn't address the topic of Bankman-Fried's neurodiversity at all. They say Bankman-Fried's life and characteristics — he grew up in a stable home with caring parents, went to an elite college, and worked at an elite Wall Street trading firm — show that he knew exactly what he was doing.

"The defendant chose to abandon honest work to pursue profit and influence through crime, and he used the proceeds of those crimes to enjoy his own lifestyle of affluence," they wrote. "The fact that he chose to engage in a massive fraud is an aggravating factor, not a mitigating one."

Bankman-Fried's diagnosis may come up again in an appeal. During the trial, lawyers and jail staffers tussled over access to his prescribed medication that he said he needed to focus for his defense.

It's in the judge's hands to decide how much neurodivergence should matter.

"You'd have to show that his divergence had some effect, I would think, on his judgment, his ability to understand right and wrong," Maimin, the Lowenstein Sandler attorney, told BI.

Maimin said that, in any case, the Federal Bureau of Prisons dealt with various neurological issues all the time.

"The BOP handles people with an enormous range of medical problems, including psychological problems, neurological problems, and probably has a not insignificant population of neurodiverse people, and is able to handle that," she said.

At this point, Kaplan has formed his own view of Bankman-Fried.

It doesn't appear to be positive.

Before the trial, he ordered Bankman-Fried to be jailed after finding that he repeatedly violated his house-arrest conditions and engaged in witness tampering, including for leaking personal journal entries by Caroline Ellison , his ex-girlfriend and the former CEO of Alemda Research, and by sending text messages to an FTX lawyer offering "a constructive relationship."

When Bankman-Fried took the witness stand for his criminal trial, often giving circuitous answers, the judge didn't find his testimony very convincing .

"Part of the problem," Kaplan said, "is that the witness has what I'll simply call an interesting way of responding to questions."

Correction: March 28, 2024 — An earlier version of this story misstated whether Sam Bankman-Fried's lawyers disclosed an autism diagnosis. In their February sentencing submission, they included a letter from a psychiatrist diagnosing him with autism spectrum disorder.

Watch: Why Sam Bankman-Fried is charged with perpetuating one of the biggest frauds in US history

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