What Do Bookkeepers Do for a Small Business?

Bookkeeping plays a fundamental role in the financial organization of any small business. It involves systematically recording all financial transactions, providing a clear picture of money movement. This practice ensures accurate, up-to-date financial records, which are foundational for understanding a business’s financial health.

Recording Business Transactions

Bookkeepers accurately and consistently record all financial transactions within a small business. This includes meticulously logging every instance of income, such as revenue generated from sales of goods or services. Similarly, all expenses, like payments to vendors for supplies, operational costs, and disbursements for payroll, are carefully documented.

Each transaction is then categorized according to the business’s chart of accounts, which is a structured list of all financial accounts, such as assets, liabilities, equity, revenues, and expenses. This categorization helps to organize financial data logically and ensures consistency across all entries. These categorized entries are then posted to the general ledger, the main record-keeping system for a company’s financial data, and relevant sub-ledgers, which provide detailed breakdowns for specific accounts. Accuracy and consistency in these daily entries are paramount for the overall integrity of a business’s financial information.

Reconciling Accounts and Generating Reports

Bookkeepers perform regular reconciliations to ensure internal financial records align with external statements and maintain data accuracy. This includes routinely reconciling bank accounts, matching recorded transactions against the entries on the business’s bank statements. Reconciliation also extends to credit card statements, verifying that all credit card charges and payments are correctly accounted for within the business’s books.

Reconciliation identifies any discrepancies, catches errors, and ensures the completeness and accuracy of financial data. This detailed review provides a reliable basis for financial reporting. Once accounts are reconciled, bookkeepers generate primary financial statements: the Profit & Loss (P&L) statement, also known as the Income Statement, and the Balance Sheet. The P&L illustrates profitability over a specific period, detailing revenues and expenses, while the Balance Sheet provides a snapshot of the business’s financial position.

Managing Specific Financial Processes

Bookkeepers manage specific financial flows vital for a small business’s operations. This includes accounts receivable management, which involves creating and sending invoices to customers for goods or services provided. They track customer payments and may follow up on overdue accounts to ensure timely collection of revenue.

Bookkeepers also handle accounts payable management, recording incoming bills from vendors and organizing them for payment. They schedule payments to ensure vendors are paid on time, helping a business maintain good relationships with its suppliers. For payroll, bookkeepers maintain accurate records of employee hours worked, wages earned, and deductions, preparing the necessary data for payroll processing. They also play a role in sales tax data preparation, tracking the sales tax collected from customers on taxable transactions. This data is then compiled and organized for accurate reporting and filing of sales tax returns with the appropriate tax authorities.

Providing Data for Business Decisions

The organized financial data generated by bookkeepers supports various business functions and informs decisions. Bookkeepers compile and organize all necessary financial records for tax preparation, which streamlines the process for the business owner and their tax accountant. This organized data helps ensure that all required documentation, such as income and expense records, is readily available for filing annual tax returns.

Bookkeepers supply up-to-date information that helps track cash flow, providing insights into the actual movement of money within the business. This information is crucial for managing daily operations and anticipating future liquidity needs. Accurate financial data, prepared by the bookkeeper, serves as a reliable basis for budgeting, forecasting, and broader financial planning initiatives. They present financial information in a clear and understandable format to the business owner when requested, enabling informed strategic choices.