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What Are Bookkeeping Functions?

The functions of a bookkeeper may be many and varied however there are a few straightforward procedures that every bookkeeper will know about such as recording, balancing and securely filing financial transactions.

Small business owners who are just starting out are often led to believe that they need to employ a bookkeeper in order to maintain their financial records. However if you learn about what you need to do yourself you can often do a large amount of the basic information inputting yourself and may only need to hire a bookkeeper or accountant as you come to file your information with the IRS in the USA or HMRC in the UK.

It might be helpful to compare and contrast what an accountant does to help you to see the role of the bookkeeper. Accountants tend to use the data generated by the bookkeeper to show subjective insights into the functioning of the business. The bookkeeper will create accounts from the raw data provided during the financial business life of the company as it goes about trading. The role of the bookkeeper, therefore, may be seen as a more administrative position. The accountant will analyse that information and provide insights into the company that the bookkeeper would not perhaps normally consider. The accountant would also be the person who will help with strategic tax planning and financial forecasting. She would do a meta-analysis of the business and her knowledge will bring in aspects other than the more fundamental daily transactional business activities that are the territory of the bookkeeper.

Bookkeeping involves recording transactions in a consistent and rigorous way. The bookkeeper will follow a strict procedure and in this way she will create a file which, on paper or in a digital format, accurately represents the actual financial business dealings of  the company. The bookkeeper will log and add supporting information and notes to debits and credits (incomings/outgoings). She will issue invoices, perhaps do some or all of the payroll activities in the business and she will organise and update historical business information and work on the ‘general ledger’ to ensure its accuracy and coherence.

The ‘general ledger’ is a written, detailed account of what the business is spending and earning. A bookkeeper will add in data (called ‘posting’) to the general ledger. For instance when a sale is made the ledger (which may be an actual physical paper file which is updated or a computerised accounting software package) is adjusted to add in the new cash input. When an item or services are purchased the ledger will be updated to reflect the new expense in the records. One critical funtion of the bookkeeper is to check and maintain the balance of the account e.g. what has come in, what has been spent and what, now, is the actual balance of these (on paper) mathematical activities?

The bookkeeper will use differing methods of recording the data according to his preference, the way the company specifies it or the system has been set up. Some people use simple paper ledgers (as discussed above). These days most people opt for using computerised programmes that will also work out the totals of the incomings and outgoings for you. Spreadsheets can also be used to log the data or it may be that parts of the accounts are done on paper, some in a spreadsheet and some using a dedicated software package. The bookkeeper will need to track what’s happening in the business finances however this is done.

If the bookkeeper is the business owner and is a sole trader he will have a wide variety of tasks to perform. He will need to work on all the invoicing and payments as well as creating the financial statement at the year end (with or without the help of an accountant). However if the bookkeeper’s role is to work in a specific department within a large company he may well have just one specific function for which he is wholly responsible (e.g. purchase ledger (which means to check on all the items bought by the company and follow up on the payments made and organise everything to do with that)).

Whatever size of business you work in a bookkeeper’s role could involve reconciling the bank account. To do this you will need to view the transactions that have appeared in the bank and log those against what is going on in the daily business. You will then be in a position to alert the business owner if the bank account is likely to need more funds (e.g. if it might become overdrawn/exceed the overdraft limit). Reconciling the bank account means marking what has come into or gone out of the bank compared with what you have noted in your accounts. By reconciling the bank account you then know which are the outstanding invoices and payments that you need to chase up.

The bookkeeper’s role is to keep his accounts according not only to basic bookkeeping principles but also with regard to the company’s rules and specifications and most importantly following legal requirements. If in doubt the bookkeeper should refer to HMRC or his local tax consultant. A bookkeeper will need to bring to light any practices which could lead to errors in the business books and then work with the business managers to rectify the system and update any official bodies and so on. Mistakes need to be put right as soon as possible to avoid penalties which could further impact company finances.

The bookkeeper will need to have great data entry skills and thoroughness. She will need to have a head for figures and double check her work at all times. She will know what is happening in the monetary core of the company and be discrete and keep the information safe and away from third parties. Confidentiality will be maintained in everything she does. Her filing systems will be orderly and also updated as and when for instance when data needs be destroyed once it has served its purpose. She will also make sure that the relevant information is never deleted or corrupted.

The function of the bookkeeper could also involve recording the value of property and other financial fixed assets. He or she may also take on further responsibilities such as chasing up late payments, purchasing (buying) and generally constantly working to become increasingly efficient so helping to improve the profit of the business and contribute to the net income or the ‘bottom line’ (the actual money made after all the sales and expenses have been calculated).

A bookkeeper will work according to a number of rules that are generally the same no matter the nature of the business. Almost every type of business entity in the world will need some sort of coherent and clear system which shows the financial transactions and therefore whether the company is making any money or not. Bookkeeping, therefore is a fantastic profession to persue and is one of the most versatile career paths you can follow.


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