BOOKKEEPING: Meaning, Types, and How to Start One

Bookkeeping involves recording all financial transactions made by a business, hence, the name. It is often mistaken for accounting, but as we’ll see in this article, they’re not the same. There are three types of bookkeeping services, and we’ll discuss them in this chapter, along with how you can start a career in bookkeeping even if you have no experience.

What Is Bookkeeping?

Bookkeeping is the process of keeping track of every financial transaction made by a business firm from its inception to its closure. Each financial transaction is recorded based on supporting documentation, depending on the type of accounting system used by the business. That documentation could be a receipt, an invoice, a purchase order, or another type of financial record demonstrating that the transaction occurred.

Bookkeeping transactions can be recorded manually in a journal or electronically using a spreadsheet program such as Microsoft Excel. Most businesses now keep books that show their financial transactions using specialized bookkeeping computer programs. Bookkeepers can record financial transactions using either single-entry or double-entry bookkeeping. Bookkeepers must understand the firm’s chart of accounts and how to balance the books using debits and credits.

What Are The Three Types Of Bookkeeping?

The three types of bookkeeping are single-entry systems, double-entry systems, and virtual bookkeeping.

#1. Single-entry Systems

As the name implies, a single-entry system involves making only one entry into the accounting records for each transaction that occurs within a corporation. In general, a single accounting system is preferable for use with smaller organizations that bring in less money.

The single-entry bookkeeping method does not keep asset or liability records. This is due to the fact that each transaction has only one entry. There will be cash disbursements and cash receipts records, which refer to the cash that is flowing into and out of your organization.

A single-entry bookkeeping system is a good option for businesses that don’t deal with a lot of sophisticated or intricate transactions. This method records cash sales as well as firm expenses that are paid at the time they are incurred.

Companies with accounts receivable, accounts payable, or a large number of capital transactions are unlikely to use this approach. When using this method of bookkeeping, entries do not link transactions to their appropriate accounts, which may make tracking revenues and expenses more difficult.

The cash sales log, cash disbursements journal, and bank statements form the foundation of the single-entry system. When a customer makes a purchase, a notation is made in the sales journal, and when an expense is settled, a notation is made in the payments and reimbursements journal.

#2. Double-entry Bookkeeping System

The Double-Entry Bookkeeping System is the traditional method of record-keeping used by the vast majority of businesses, bookkeepers, and accountants.

The preferred method is a double-entry system, which is far more complex and involved to maintain than a single-entry system. It provides the concept of debit and credit, which denotes that for every transaction, something is gained (a debit) and something is lost (a credit). As a result, each recorded transaction affects at least two accounts.

One of the many advantages of using the double-entry bookkeeping system is that it has a process in place to ensure that business transactions are accurately and thoroughly recorded. It is a reliable source of financial data and an accurate assessment of a company’s condition or performance.

Businesses that conduct more complicated transactions on a regular basis frequently use bookkeeping systems with two entries per transaction. This strategy works best for businesses that purchase goods and inventory on credit and generate revenue through accounts receivable.

Each transaction is recorded separately as an item of income or expense before creating a second entry to associate each with the appropriate account. For example, if you received income from a customer, it would be reported as income and associated with the customer’s account.

In the event of an audit or if you need to identify the source of payments made for costs and revenue, you will have a paper trail to refer to. Debits and credits are accounting terms that refer to additions to and subtraction from different accounts as a result of user-initiated transactions. They are put to use in this way.

#3. Virtual Bookkeeping

If the thought of keeping your books using single-entry or double-entry systems makes you nervous, you may find that using virtual accounting services is advantageous. The use of a virtual bookkeeper eliminates the need for either costly CPA fees or an in-house bookkeeping professional.

Most virtual bookkeepers will accept electronic copies of your sales invoices, expense receipts, and payroll ledgers. After posting your transactions to the appropriate journals and ledgers, your bookkeeper will email you a copy of your reports.

Virtual bookkeepers, who are frequently certified public accountants or accountants with degrees, typically charge lower rates than private CPA firms.

A virtual bookkeeper is essentially an internet agent who manages your books and keeps them up to date. People who believe that single-entry or double-entry accounting methods are too difficult to maintain frequently use the available virtual bookkeeping services.

They cost a fraction of what an on-site employee would cost a small business, but they are just as effective. Because of the costs, a virtual bookkeeper is an excellent alternative to hiring an in-house bookkeeper or accountant.

Virtual bookkeepers are most commonly used for invoices, payroll ledgers, and expense receipts, but they can perform any accounting-related task that you may require. They will keep your books for you using either the single-entry or double-entry bookkeeping techniques.

Accounting vs. Bookkeeping: Are They The Same?

Accounting and bookkeeping are both critical components of financial management. At first glance, the two may appear to be very similar, but there are a few key differences.

Bookkeeping is concerned with the recording and organization of financial data. Accounting involves the interpretation and presentation of data to business owners and investors.

Payroll, invoicing, receipts, and bills are common components of bookkeeping. On the other hand, financial statements and reports are common components of accounting.

Bookkeeping involves keeping track of business transactions, while accounting involves budgets, tax returns, and business performance analysis

Bookkeeping vs Accounting: Differences in Job Roles

Bookkeepers and accountants do similar work but have different skill sets. In general, a bookkeeper’s role is to record transactions and keep you financially organized, whereas accountants provide consultation, analysis, and tax advice.

Bookkeepers are typically not required to have any formal education. They must be meticulous in their work and knowledgeable about important financial topics in order to be successful. Typically, the work of a bookkeeper is overseen by an accountant or the small business owner whose books they are doing. As a result, a bookkeeper cannot call himself or herself an “accountant.”

A bachelor’s degree in accounting is usually required to qualify for the title of an accountant. Finance degrees are frequently considered adequate substitutes for those who do not have a specific accounting degree.

Accountants, unlike bookkeepers, can obtain additional professional certifications. Accountants with sufficient experience and education, for example, can obtain the designation of Certified Public Accountant (CPA), which is one of the most common types of accounting designations. To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and have professional accounting experience. The cost of an accountant is determined by the required credentials.

How to Start Bookkeeping With No Experience

If you want to start a career in bookkeeping, but you don’t have the experience, here are some steps to follow to succeed:

#1. Invest in work tools

When you decide to learn how to become a bookkeeper, you must also be willing to invest in this career path.

You’re essentially training to be a virtual bookkeeper, which means you’ll be working remotely — most likely as a business’s third-party service provider.

It stands to reason that your first investment should be a good computer and a reliable Internet connection. Because these are the two tools you’ll be using the most, they must be up to the job.

It’s also a good idea to invest in a mobile or landline phone service, as these will be your primary means of communicating with customers and colleagues.

While you’re still establishing your business, you can use your personal phone and landline, but you’ll eventually need to separate your business and personal communications.

#2. Obtain Fundamental Bookkeeping Training

A good bookkeeping training program will teach you bookkeeping skills that business owners will gladly pay for. Hence, you should go for one.

The bookkeeping skills taught will teach you how to:

Keep track of financial transactions
Maintain financial records
Prepare financial statements
Use the proper bookkeeping software
Record accounts receivable and payable

There is no denying that you can accomplish a lot with this career path, and you can learn how to become a bookkeeper by taking training courses. Bookkeeping training does not even require any prior work experience. Furthermore, you do not need to be a Certified Public Accountant (CPA).

If you have no prior experience in the accounting industry, you must choose your bookkeeping courses carefully. They should cover everything you need to know to become a competent and capable bookkeeper.

#3. Become acquainted with accounting software

Aside from learning the fundamental concepts and how-of to’s bookkeeping, you should also become acquainted with accounting software. You can learn the fundamentals by watching online tutorials or getting hands-on training from a professional bookkeeper.

Accounting software knowledge can help you become an even more valuable asset to your clients. Software tools help to streamline the bookkeeping process, allowing you to do your job more efficiently.

Accounting software, such as QuickBooks, also aids in lowering startup costs.

When selecting an online accounting program, consider both your clients’ and your own personal financial management. Remember that you’ll be using it to manage your own finances as well.

#4. Launch your bookkeeping company

It’s time to start your bookkeeping business after learning how to become a bookkeeper and arming yourself with business knowledge. You could also work as a freelance bookkeeper. Here are some steps to take if you want to start a bookkeeping business or work as a freelance bookkeeper:

Get a tax identification number.
As needed, apply for licenses and business permits.
Choose a structure for your company (sole proprietorship, LLC, etc.)

You must market your services in addition to formalizing your bookkeeping business. There are several approaches to this:

Attend networking events and small business groups to meet potential colleagues and clients.
Word of Mouth — Inform your family and friends about your business and capitalize on existing relationships. Request that people recommend you so that you can gain clients and expand your network.
Make a Website — Having your own website helps to establish your credibility. It allows others to find you and learn about the services you provide, and you can eventually include client testimonials on your website.
Create an account on LinkedIn — Social selling is an efficient method of marketing your services, and you can begin by connecting with people on LinkedIn. As with your website, keep your profile up to date with relevant and valuable content.
Distribute business cards — Give people something to remember you by so that when they need a bookkeeper, you’ll be the first person that comes to mind.

#5. Negotiate a reasonable price

According to the US Bureau of Labor Statistics, the average annual bookkeeper salary is around $40,000 ($19 per hour). Full-time bookkeepers are paid at this rate.

You can earn more as a service provider or freelancer than the average full-time bookkeeper. The key to commanding a higher rate is to provide your clients with the value they require.

Bookkeeper Launch can teach you this as part of the real-world problems you’ll learn to solve. The course will give you the confidence to set a minimum hourly rate of $60.

#6. Invest in Yourself

The first step in learning how to start a career in bookkeeping is to purchase work tools. Now that we’ve come full circle, the final step you should keep taking is investing in yourself.

This entails actively improving your skills through regular training. You must also stay current on industry standards in order to provide the best service to your clients.

Develop an eagerness to learn new things because there is always something new to discover and learn. The accounting industry is constantly changing, and if you want to stay in business, you must adapt.

If you follow these six steps on how to become a bookkeeper, you’ll be well on your way to starting a career in bookkeeping. Even if you have no prior experience, you can start bookkeeping with enough motivation and discipline.

Bookkeeping Services

Online bookkeeping services can save entrepreneurs both time and money. At the very least, your bookkeeping service should provide accurate bookkeeping and, if your company requires it, payroll and tax services. It should also provide excellent customer service and have a reputation for trustworthiness and dependability.

With hundreds of bookkeeping options available, here are the top best bookkeeping services for you:

Accountant
QuickBooks
Botkeeper
Ignite Spot Accounting
Sunrise
Bookkeeper 360
FinancePal
Bookkeeper.com
KPMG Spark
Pilot

How Do Bookkeeping Services Work?

The process of accurately recording your company’s financial activity is known as small-business bookkeeping. You can outsource the following tasks to online bookkeeping services:

Reconciliation of bank statements.
Accounts receivable management.
Generating financial reports
Payroll administration.
Making tax forms.

Most bookkeeping services will, at the very least, input transactions, reconcile accounts, and send you financial statements on a regular basis. Most services communicate monthly, but you can pay extra to receive weekly reports in some cases. You can speak with your bookkeeper (or team of bookkeepers) as often as you want or several times per month, depending on the company.

What Are Basic Bookkeeping Skills?

Basic bookkeeping skills include attention to detail, invoicing, critical thinking, organization, excellent communication, time management, etc.

Is Bookkeeping A Difficult Job?

Most people would say that a bookkeeper’s job is difficult. Aside from basic bookkeeping knowledge, one should be familiar with laws. The work is made more difficult by frequent legislative changes.

What Is The Golden Rule Of Bookkeeping?

The first golden rule of bookkeeping is “ credit the giver, debit the receiver”.

How Long Is A Course In Bookkeeping?

Most bookkeeping certificate programs require 20-30 credits and can be completed in no more than two years. Many online programs with accelerated schedules have lower credit requirements and faster paths to graduation.

In Conclusion,

All businesses, whether small, medium, or large, require bookkeeping. It is the process of keeping track of a company’s financial transactions. There are numerous types of bookkeeping systems, and you must be familiar with them all in order to select the best one for your company. Bookkeepers are individuals who manage all financial data for businesses. Correct bookkeeping provides businesses with a credible measurement of their performance.