Join today get up to 75% OFF for the first 3 months!*

What is bookkeeping?

What does bookkeeping mean?

Bookkeeping is the process of recording, organising, and tracking a business’s financial transactions. It’s vital to understanding a business’s financial health and decision-making capacity. These tasks are typically done by an accountant or bookkeeper, but small business owners may also take up the responsibility.

A bookkeeper is a financial professional who specialises in managing a business’s financial transactions. These professionals are the backbone of the financial system, maintaining the accuracy and completeness of financial records.

Why is bookkeeping important?

Accurate bookkeeping provides a clear picture of your business’s financial performance. You can see your income sources, expenses, profitability, and overall financial position. This transparency is crucial for making new investments, pricing strategies, and overall business planning.

Bookkeeping also aids proper cash flow management, allowing you to forecast future needs and avoid cash flow shortages. It also helps potential investors assess the viability and growth potential of the business.

Beyond internal matters, businesses are also required to maintain financial records for tax compliance.  Knowing your finances are in order provides peace of mind and allows you to focus on running your business.

Important bookkeeping functions

Below are the most vital aspects of bookkeeping for small businesses:

  • Transaction recording
    Every financial transaction that flows in or out of the business is meticulously documented. This includes purchases, sales, expenses, income, and any other financial activity.
  • Classification
    Transactions are categorised according to their nature (e.g., income, expense, asset, liability). This classification allows for grouping similar transactions and generating meaningful financial reports.
  • Accounts maintenance
    Bookkeepers maintain general ledger accounts, which represent various categories of the company’s financial activity (e.g., cash account, inventory account, accounts receivable account). Transactions are recorded in these accounts to track balances and understand the financial position of the business.
  • Reconciliation
    Regularly balancing accounts and comparing them with external sources (e.g., bank statements and credit card statements) ensures the accuracy of the bookkeeping records.

Bookkeeping is not just about keeping track of numbers; it’s about gaining valuable insights into your business’s financial health. By maintaining accurate and organised records, you can make informed decisions, ensure financial stability, and pave the way for sustainable growth.

Try Australian payroll software for free

Create your free account now.

*By clicking “Try For Free“, you agree to our terms of services and privacy policy.