Is Bookkeeping a Difficult Job?
Bookkeeping vs. Accounting
While these two roles work hand in hand, the responsibilities that fall under each are different. Bookkeeping is the process of recording all of a company’s day-to-day financial transactions, and accounting is the process of analyzing those records.
Neither bookkeepers nor accountants are technically required to obtain a CPA certification or Master’s degree, but it is much more common for accountants to do so as many companies prefer it. Accountants are expected to have a Bachelor’s degree at a minimum – whereas bookkeepers don’t even need a college degree. The only real prerequisites for bookkeeping are being skilled at math and being very detail-oriented. Many people hired for the job often have different educational backgrounds but found their way to financial planning, tax preparation, auditing, or the like.
That said, bookkeepers and accountants certainly have complementary strengths that help a company to see and monitor its business’ financial health. Those who do have a formal degree in accounting may very well start their career as a bookkeeper to really familiarize themselves with the types of financial records they eventually hope to analyze.
Basic bookkeeping practices
In addition to being adept at math, bookkeepers should have a firm understanding of the following basic bookkeeping practices:
1. Record transactions as soon as they happen
Every time a business expense is incurred or income is generated, it is the bookkeeper’s job to record the transaction in the company’s journals and ledgers immediately.
Frequent transactions, such as sales, purchases, cash receipts, and disbursements, should be recorded in journals. Accounts payable and accounts receivable are recorded in special ledgers to track how much money is expected from particular customers or how much needs to be paid to each supplier.
Recording transactions as they happen ensures businesses are prepared to make timely financial decisions at any point necessary. It also enables them to stick to their budget, forecast revenue, and better comply with taxes. If ever a bookkeeper fails to submit an updated financial report, the company may be at risk of tax penalties or even bankruptcy.
2. Separate personal and business finances
Some business owners hire the same person to handle both their personal and business finances. While this may help save costs – you’d only have to hire one professional to balance both books as opposed to multiple – it can become problematic. Just like doctors, bookkeepers have different specializations. Some may have a proven track record in documenting personal finances but no experience handling substantial corporate accounts.
For personal recordkeeping, bookkeepers only need to track the employer’s expenses, mainly to pay personal income taxes and debts, prepare mortgage payments, or plan for a holiday vacation. Business bookkeeping, on the other hand, requires careful monitoring of all kinds of transactions – revenue, expenses, assets, liabilities, etc. – all on a daily, monthly and annual basis. These financial statements are more heavily weighted as they are imperative to securing additional funds from investors, filing the company’s taxes, or preparing the ground for business expansion.
Professionals who want to practice corporate bookkeeping need to acquaint themselves with the laws involving tax compliance. Having this level of awareness will increase their control in preparing tax returns and preventing any financial risks that the company and its owners may encounter in the future.
3. Manage accounts payable and accounts receivable diligently
First off, what’s the difference between the two? Accounts payable refers to everything that a company owes to its creditors or suppliers. Accounts receivable refers to everything that the company expects to receive from its customers.
Bookkeepers have to diligently watch the movement of money in the business’ accounts payable and accounts receivable to avoid penalties that come with late payments, and to collect cash from customers as soon as they’re due. Watching the AP/AR closely also helps companies follow-up on any outstanding charges from past due accounts.
When there’s too much money going out from accounts payables and not enough coming in from accounts receivable, the business is at risk of having a negative cash flow. A negative cash flow means that the company is spending more than it earns. If it persists, there will be no funds left to keep up with operational expenses or pay employees.
Businesses that use the accrual method of accounting, must have all accounts payable and accounts receivable reflected in their books.
4. Keep receipts
Receipts are proof of transactions. They come in the form of sales invoices, note payables, credit card payments, and even pay slips. It’s the job of bookkeepers to make sure that all financial transactions and evidence thereof are kept on file to ensure transparency.
Even when receipts have already been recorded in the accounting or bookkeeping software, bookkeepers should still store hard copies for at least three years. When business owners see discrepancies in the financial statements, receipts will serve as evidence that bookkeepers and accountants can refer back to if the need arises.
While there’s no single way to keep receipts on file, there are some standard rules to follow. A bookkeeper documents the sales invoices in a timely fashion, or logs the information to the accounting journal by month’s end.
Some bookkeepers create a paper storing system where they organize receipts per category. For example, they put all receipts related to meals in one folder and office supplies in another. Others store receipts according to projects for easy tracking.
Bookkeeping is definitely tedious since the bookkeeper needs to manage financial information both in digital and physical platforms, but the job becomes much more difficult if the person-in-charge is not cultivating healthy habits that allow them and their team to keep things organized. Learning how to be a bookkeeper means knowing where and when to put the data where it belongs.
5. Track expenses using bookkeeping or accounting software
Human error and miscalculations can have significant ramifications when it comes to business bookkeeping. The best way to minimize these types of occurrences is to equip the business with bookkeeping or accounting software. Digital accounting tools are not made to replace the bookkeeper’s job, but rather to supplement it. These programs automate repetitive tasks across many aspects of the business – from human resources and accounting, to business management and cloud storage.
Bookkeeping is a very thorough practice, which makes it time-consuming. Software tools help to save on time so bookkeepers can focus on things like strategizing or addressing bottlenecks. Accounting software tools can keep records of previous transactions that bookkeepers can quickly locate, store sensitive financial information, reconcile bank accounts in one place, and easily send invoices in just a few clicks.
While accounting software removes a lot of weight from the bookkeeper’s shoulders, it doesn’t mean that human intervention is no longer necessary. The platform will not work by itself. Bookkeepers and accountants need to manipulate the system to generate the right reports, and to do this, they have to have high-level knowledge of the software’s functionalities.
So, is bookkeeping a difficult job?
Bookkeeping is definitely a tedious job that requires an incredibly strong level of detail. If you think of a company’s financial health like a piece of furniture, the bookkeepers prepare all the various pieces so that the accountants can assemble it. Luckily there are various accounting solutions available to help bookkeeping professionals mitigate the risks that come with the job, such as duplication of data or miscalculations of revenue.
Bookkeeping may not demand an advanced level of education to get started, but those interested in pursuing it can certainly take actions to continually hone their skills. Things like training programs and reading books on bookkeeping practices will help to simplify how the job is done.