1.1 – What is Bookkeeping?
Bookkeeping is simply the act of recording any kind of financial transaction that involves a business. This includes any sales, bills paid, wages paid to employees, invoices sent to clients, or any other kind of financial transaction that a business can conceivably be a part of. All these records are kept in a single place, called the “books.” As you can imagine, the word comes from the fact that for most of human history, the only way to record finances in a single place was literally a giant book. In this day and age, however, people seldom record transactions by hand into a physical book. The “books” of a business nowadays are almost always a computer file, managed with specialized bookkeeping software, such as Quickbooks or Excel.
A person responsible for recording a business’s financial transaction into the books is called a “bookkeeper.” Many companies, if they are large enough, have a full time bookkeeper whose sole job is to maintain and manage that company’s books. Sometimes multiple bookkeepers are required for this because of the sheer volume of financial transactions a company will be involved in if it gets big enough.
An accurate set of books is an incredibly important component to any successful business, because the people running it must have general sense of how things are going financially, and be able to determine what aspects of the business are doing very well financially, or perhaps not so well financially, in order to make optimal decisions. We will go into much greater detail in future posts on what this entails, but for now, all you really need to understand is that a company’s books are kind of like a medical history profile to a person: The books provide information on the financial health of a business.
Not only is it incredibly important for any business to keep accurate “books,” but it is actually legally required. For example, all businesses need to pay taxes based on their financial records, or they need to produce financial reports to people like investors and shareholders.