Bookkeeping: What is it and Why is it Important

What is bookkeeping? To be honest many people don’t think about this question. They see bookkeepers as data entry clerks and that’s it. But is that really what a good bookkeeper is? I don’t think so. A data entry clerk is not trained to understand taxes and business needs like a good bookkeeper would. To me bookkeeping involves so much more and I’ve listed some of the top tasks here.

  1. Recording Monthly Transactions. Now this does involve data entry, but it data entry guided by education and experience. A bookkeeper should have solid knowledge of the tax law and understand the client’s business operations and needs. Not everyone’s business goal is to never pay taxes. What if the business purpose is to sell after five years? Would a data entry clerk understand how to code transactions in order to best fit this situation? Would a business owner? Good bookkeeping involves someone who knows information like this about a business and uses that and IRS guidelines to build a solid set of books.
  2. Filing and Paying Taxes. One of the most upsetting things I see is when a client has a notice stating they owe for a missed filing. Most governmental bodies charge fees for late filing and late payment and then add interest on top. Many clients that have these notices miss filings and payments because they simply forgot about them. Good bookkeeping practices ensure that costly mistakes like these never happen. The other benefit is that bookkeepers record all their transactions and have documentation for the amounts filed and taxes paid. This goes a long way when a review or audit comes. No one should have to scramble to get documents ready for an audit.
  3. Payroll. When a business has employees, one of the biggest headaches can come from payroll. A straightforward employee’s payroll has to be calculated with FICA (social security and medicare) taxes and withholding that is calculated on a per employee basis. Add child support or other wage garnishments in the mix and let the confusion begin. The federal government has rules that affect wage garnishments and they are not simple or straightforward. With that said, it is the business owner’s responsibility to make sure all payroll is administered properly. This is were a bookkeeping professional can really help out.
  4. Accounts Payable and Accounts Receivable. Missing payments to vendors has some of the same costly problems that missing filing and payments on taxes. Companies that run into late payments often fail to see how the cost of these fees and interest add up. Having someone who receives bills, writes checks, and even sends them out can really improve a company’s bottom line. Not to mention the stress that it alleviates. The same goes for accounts receivables. If a client bills their customers but the customer never sends a check, who follows up with them? How do agreed upon fees get applied? A bookkeeping firm can help follow through with receivables and protect a business’s bottom line.
  5. Other Financial Tasks. Bookkeeping can involve other tasks as well and we usually handle them on a case by case basis. One of the nice services we offer is budgeting. Others are helping clients maintain digital storage of their records in an online drop box. These tasks are usually specific to the business owner or manager and help them with productivity and making judgement calls on how they should proceed with their business.

I hope this helps increase awareness and understanding about what a bookkeeper does. It’s much more than data entry. They can be a vital part of any organization by giving insights into the business’s financial situation and protecting the bottom line.

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