What Does a Bookkeeper Do for a Small Business?

A bookkeeper performs a fundamental role in maintaining the financial health of a small business. They ensure that all monetary transactions are accurately recorded and organized, creating a clear picture of the company’s financial activities. This meticulous record-keeping provides the foundation for informed business decisions and supports compliance.

Managing Daily Financial Transactions

A bookkeeper’s primary responsibility involves managing a business’s daily financial transactions. This includes recording every financial event, ensuring that money coming in and going out is properly categorized. They document details such as date, amount, and parties involved, often utilizing accounting software for efficiency.

Managing accounts payable is a core duty. Bookkeepers handle vendor invoices, track liabilities, schedule timely payments, and record all disbursements. This maintains good relationships with suppliers and prevents late payment penalties, directly impacting a business’s cash flow.

Bookkeepers oversee accounts receivable, invoicing customers for goods or services. They track payments owed to the business and follow up on overdue accounts to ensure timely revenue collection. This helps a business understand its incoming cash and manage working capital.

Processing payroll is another common task, involving calculating employee wages, deductions, and withholdings. Bookkeepers ensure payments are issued accurately and on schedule, and that payroll records are maintained. Staying current with payroll rules helps businesses manage employee compensation and associated tax obligations.

Reconciling bank accounts and credit cards is an ongoing task. Bookkeepers regularly compare internal financial records with bank and credit card statements. This process identifies and resolves discrepancies, such as unrecorded transactions or bank fees, ensuring data accuracy. Regular reconciliation helps detect errors, prevent fraud, and provides an accurate reflection of cash balances.

Preparing Key Financial Statements

Bookkeepers prepare essential financial statements from daily transaction data. These reports offer a structured overview of a business’s financial performance and position, serving as vital tools for business owners. They provide clarity on a company’s financial standing.

The Profit and Loss (P&L) Statement, also known as an Income Statement, details a business’s revenues, costs, and expenses over a specific period. It calculates net profit or loss by subtracting total expenses from total revenue, providing insight into profitability. This statement helps owners understand financial flows, informing decisions about pricing and cost management.

The Balance Sheet provides a snapshot of a company’s financial health at a specific point in time. It presents a clear overview of assets (what the business owns), liabilities (what it owes), and owner’s equity (the residual value after liabilities are subtracted from assets). This statement helps assess the business’s financial stability, liquidity, and overall solvency.

The Cash Flow Statement tracks cash movement into and out of the business. It categorizes activities into operating, investing, and financing, showing how cash is generated and utilized. While a P&L statement shows accrual profitability, the cash flow statement highlights actual cash available, important for managing day-to-day liquidity and meeting obligations.

Collaborating with Other Financial Experts

A bookkeeper’s role in daily financial record-keeping is distinct from other financial professionals like Certified Public Accountants (CPAs) or tax preparers. Bookkeepers provide accurate, organized financial data that these experts utilize for higher-level analysis and compliance. Their work ensures raw financial information is ready for further processing.

Bookkeepers maintain the general ledger, perform reconciliations, and manage accounts, preparing financial records for tax season. They identify missing information or inconsistencies, making it easier for tax professionals to review and file returns accurately. This preparatory work streamlines tax preparation, saving time and potential penalties.

Bookkeepers do not file income tax returns or provide complex tax advice; CPAs or specialized tax preparers handle those tasks. A bookkeeper’s function is to ensure all financial transactions are correctly recorded and categorized, providing a reliable basis for tax calculations. Accountants analyze this data to offer strategic financial planning, tax optimization, and broader business insights.

Collaboration between a bookkeeper and other financial experts is an effective model for small businesses. The bookkeeper manages day-to-day financial operations, while the accountant or CPA interprets financial statements, plans taxes, and provides strategic guidance. This division of labor ensures thorough record-keeping and expert financial analysis, supporting the business’s financial health and growth.