Bookkeepers – what do they really do?

In any business, big or small, bookkeepers play a critical role in keeping financial records in order. They ensure that every financial transaction, no matter how small, is accurately recorded and categorised. This record-keeping is fundamental to understanding the business’s financial health and planning for the future.

Bookkeepers primarily manage a company’s financial transactions and are responsible for recording this information accurately in the company’s general ledger. This role requires precision and attention to detail, as even a minor oversight could impact financial reporting and compliance.

Core responsibilities of bookkeepers

At the heart of bookkeeping lies a range of duties that vary depending on the size and complexity of the business. Key responsibilities include:

• Recording financial transactions – Bookkeepers ensure that every transaction, from sales and purchases to payroll and banking activities, is documented.
• Maintaining accurate records – They update financial records in a timely manner to give the company a clear view of its financial position.
• Preparing financial reports – By compiling information into reports, bookkeepers make it easier for management to understand and review financial performance.

These responsibilities are the building blocks for informed financial decision-making within a business.

Areas managed by bookkeepers

Bookkeepers are responsible for various financial functions, handling everything from accounts payable to tax management. Here’s a closer look at the specific areas they manage:

1. Accounts payable

Bookkeepers handle accounts payable, which involves managing outgoing payments. They track bills, verify invoices, and ensure timely payment to suppliers. Accurate accounts payable management is crucial, as it directly affects the company’s relationships with vendors and suppliers.

2. Accounts receivable

This area involves monitoring and collecting payments owed to the company by its clients or customers. Bookkeepers issue invoices, track payments, and follow up on overdue accounts. Proper management of accounts receivable ensures a steady cash flow, which is essential for business operations.

3. Payroll processing

Payroll is one of the most sensitive areas a bookkeeper handles, as it involves paying employees accurately and on time. They calculate wages, withhold taxes, and ensure compliance with employment regulations. This process also includes managing benefits, overtime, and bonuses where applicable.

4. Cash payments and banking transactions

They are responsible for managing cash transactions and banking activities. This includes deposits, withdrawals, and other cash payments. By monitoring these activities, they help maintain liquidity and ensure that funds are available when needed.

5. Tax management – income tax and VAT

A bookkeeper plays a significant role in tax management by keeping track of all tax-related transactions. They ensure that tax payments, including VAT, are timely and compliant with regulations. Proper tax management prevents costly penalties and contributes to the business’s overall financial health.

The use of accounting software for bookkeepers

Bookkeepers utilise various accounting software to streamline their work. With the help of approved software, they can perform tasks with greater accuracy and efficiency. Here’s a breakdown of how bookkeepers leverage software in their daily duties:

• Posting Financial Transactions
Using software, they will allocate and post transactions to ‘subsidiary books,’ which are detailed records for specific accounts. This process ensures that all transactions are correctly categorised, making it easier to generate reports later.
• Transferring Data to the General Ledger
Bookkeepers transfer data from subsidiary books to the general ledger, a comprehensive record of all financial transactions. This ledger is the foundation for financial reporting and analysis.
• Reconciling Account Balances
Reconciling accounts involves comparing the balances in the ledgers to those in the bank statements. This step helps identify discrepancies and ensures the accuracy of financial records.
• Preparing Financial Statements
A bookkeeper will compile data into key financial statements, such as the trial balance, income statement, and balance sheet. These statements offer insights into the company’s profitability, financial position, and cash flow.
• Calculating Tax and VAT Payments
Software makes it easier to calculate tax liabilities and prepare reports for income tax and VAT, allowing for accurate tax documents and timely payments.
• Processing Payroll
Accounting software allows bookkeepers to automate payroll calculations, making it easier to manage wages, deductions, and benefits. This helps maintain accurate records and ensures compliance with tax laws.

Record keeping and audit preparation

Beyond day-to-day financial management, bookkeepers play an essential role in audit preparation. Their record-keeping responsibilities ensure that the company is ready for any external or internal audits. Key tasks include:

• Verifying Source Documents: They verify the authenticity of financial documents, such as invoices and receipts. This step is crucial in maintaining a verifiable ‘paper trail’ that auditors can trace back to the source.
• Maintaining a Filing System: A well-organised filing system helps bookkeepers keep track of all financial documents. This includes both physical and digital records that support the company’s financial transactions.
• Inventory Records: They may also manage inventory records to ensure that the company’s stock aligns with financial records. This aspect of bookkeeping is especially relevant for businesses with significant inventory, as discrepancies can lead to financial inaccuracies.
• Compliance and Internal Controls: They help maintain compliance by following accounting standards and implementing internal controls. This ensures the integrity of financial data and minimises the risk of fraud.

Bookkeepers in different business sizes

The duties of a bookkeeper can vary significantly depending on the size and structure of the business. In a small business, a single bookkeeper may handle all financial tasks, from recording transactions to preparing reports. In larger companies, the bookkeeping function may be divided among several individuals, with specific bookkeepers assigned to different areas like accounts receivable or payroll.

Role of bookkeepers in Small businesses and sole traders

In a small business or sole proprietorship, bookkeepers often works alone, handling all financial tasks and reporting directly to the business owner. They may also work part-time or on a contract basis, serving multiple clients. Their primary role is to maintain accurate records and provide the business owner with financial insights.

Role of bookkeepers in medium sized businesses

In a larger small business, the bookkeeping function might be split among several individuals. For example, one might handle accounts payable, another might manage payroll, and a senior bookkeeper could oversee the general ledger. This division of labour allows for greater specialisation and efficiency.

Do bookkeepers or accountants control cash flow?

One common misconception is that bookkeepers or accountants control a business’s cash flow. However, this is not the case. The responsibility for cash flow lies primarily with the business owner or the management team. They are the ones making decisions about what money comes into the business and what goes out. Neither bookkeepers nor accountants have the authority to dictate cash flow; rather, they provide the financial information and insights that management uses to make these decisions.

This distinction is crucial for business owners to understand. If they recognise that they hold the reins on cash flow, they can better appreciate the importance of both bookkeeping and accounting in supporting their financial decisions. Bookkeeping ensures that every transaction is recorded accurately, providing a solid foundation of data. Accounting, on the other hand, interprets and analyses this data, helping management understand its financial standing and make informed choices.

By understanding their role in managing cash flow, business owners can also better grasp the principal differences between bookkeeping and accounting, ensuring they use these services effectively to grow and sustain their business.

Bookkeepers vs. Accountants: A Clear Distinction

Many new business owners wonder: What’s the difference between a bookkeeper and an accountant? The distinction is important, as each role serves a unique purpose.

Bookkeepers Record Financial Data

Bookkeepers are responsible for recording all financial transactions, ensuring that every payment, sale, and expense is documented. They maintain a systematic record of all business activities, providing a foundation for financial reporting.

Accountants Analyse and Report on Financial Data

Accountants take the information provided by bookkeepers and analyse it. They interpret and summarise financial data, presenting it to management in a way that supports decision-making. Accountants may also handle tasks such as preparing financial statements, creating budgets, and advising on tax strategy.

While both roles deal with financial data, accountants often require more advanced skills in data interpretation and financial analysis. If a business needs insights for strategic planning, budgeting, or tax preparation, an accountant is typically the best choice.

When to Hire a Bookkeeper vs. an Accountant

For most small businesses, the first step is hiring a bookkeeper to manage day-to-day financial transactions. As the business grows, there may be a need for an accountant to provide more in-depth analysis and reporting.

Bookkeepers and your business’s success

In any business, recording every single financial transaction is essential for accurate reporting and compliance. A reliable bookkeeper can help you keep track of all financial activities, making it easier to understand your company’s financial health.

Once your books are in order, you may find that you need additional financial insights to make strategic decisions. At this stage, hiring an accountant can provide the expertise required for long-term planning and growth.

By outsourcing your bookkeeping tasks, you can focus on growing your business and leave the financial details to a trusted professional.