If you ask ten business owners what a bookkeeper does, you may get ten different answers.
Some people think a bookkeeper enters transactions into QuickBooks. Others think a bookkeeper pays bills, sends invoices, or runs payroll.
And some business owners assume that if their bank account is connected to QuickBooks and transactions are coming through the bank feed, most of the bookkeeping is already done.
But professional bookkeeping is much more than entering transactions.
A good bookkeeper helps make sure the financial activity of your business is recorded accurately, accounts are reconciled, unusual balances are investigated, and your financial statements reflect what is happening in your business.
Here is what that can look like.
Recording and Categorizing Transactions
Yes, recording transactions is part of bookkeeping.
Your business may have money moving through:
- Checking accounts
- Savings accounts
- Credit cards
- Lines of credit
- Loans
- Payment processors
- Payroll accounts
- Owner accounts
Each transaction needs to be recorded correctly.
But there is an important difference between recording a transaction and accounting for a transaction correctly.
For example, a $1,500 payment might be:
- An operating expense
- An equipment purchase
- A loan payment
- A credit card payment
- An owner’s distribution
- A payment toward an outstanding vendor bill
Those transactions may look similar when they appear in a bank feed, but they can have very different effects on your financial statements.
A bookkeeper needs to understand how each of those choices affects your books, not simply choose a category.
Reconciling Bank and Credit Card Accounts
Reconciliation is one of the most important parts of bookkeeping.
When an account is reconciled, the transactions in the accounting records are compared with the actual bank or credit card statement to make sure they agree.
This process can uncover:
- Missing transactions
- Duplicate transactions
- Incorrect amounts
- Checks that have not cleared
- Deposits that have not cleared
- Bank fees or interest that were not recorded
- Transactions posted to the wrong account
- Possible unauthorized activity
Simply connecting your bank account to QuickBooks does not mean the account is reconciled.
The bank feed helps bring information into QuickBooks. Reconciliation helps determine whether the accounting records are complete and accurate.
Those are two very different things.
Managing Accounts Receivable
If your business invoices customers, bookkeeping may include managing Accounts Receivable.
Depending on the services you hire your bookkeeper to perform, this could include any of the following:
- Creating customer invoices
- Recording customer payments
- Applying payments to the correct invoices
- Recording credits
- Monitoring outstanding balances
- Reviewing aging reports
- Identifying past-due accounts
- Helping resolve incorrect customer balances
A business can show a profit on paper and still have cash flow problems if customers are not paying.
That is why Accounts Receivable deserves regular attention. Reviewing Accounts Receivable can also help to discover duplicated revenue on the books. A bank deposit may have come through bank feeds and been categorized as income. When you review the accounts receivable account and realize that the customer has paid that invoice, that leads to an investigation that uncovers this duplication.
The bookkeeper records the payment received and then changes the bank deposit to reflect the deposit of the received payment, instead of recording this as income again.
Managing Accounts Payable
Bookkeeping also includes tracking what your business owes.
Accounts Payable services can include:
- Entering vendor bills
- Tracking due dates
- Applying vendor credits
- Recording payments
- Reviewing unpaid bills
- Identifying duplicate bills
- Reconciling vendor statements
Whether the bookkeeper pays bills depends on the services agreed upon and the internal controls established by the business.
Reviewing the Balance Sheet
The Profit and Loss Statement gets most of the attention from business owners. But an experienced bookkeeper should also pay close attention to the Balance Sheet. Why?
Many bookkeeping problems hide in the balance sheet.
A bookkeeper may review accounts such as:
- Cash
- Accounts Receivable
- Accounts Payable
- Credit cards
- Loans
- Payroll liabilities
- Sales tax liabilities
- Fixed assets
- Undeposited Funds
- Owner equity accounts
Unusual or negative balances may indicate that something has been recorded incorrectly.
Every account on the Balance Sheet should have a reason for the balance that is there. We discussed reconciling the checking accounts and credit card accounts. Bookkeeping also should include reconciling all balance sheet accounts.
If something does not make sense, it deserves a closer look.
Monitoring Undeposited Funds
Undeposited Funds is a QuickBooks account that can cause significant problems when it is not used correctly.
It is designed to temporarily hold customer payments until those payments are grouped into the actual deposit that appears at the bank. This of the undeposited funds account as the cash drawer. Funds are placed into the cash drawer all day as customers pay the business. At the end of the day, cash and checks are added together and taken to the bank for deposit. You create a deposit slip that lists all of the checks received, the amount of cash received and the total amount to be deposited.
Undeposited funds works the same way. Funds are collected here and when you record a bank deposit, you click on the customer payments that you will be depositing. This moves those payments out of undeposited funds and into the bank account.
All bank deposits should match the bank deposit slip you are taking to the bank. On your bank statement you will see one deposit for the day that should agree with the bank deposit you recorded out of undeposited funds.
When the process is handled incorrectly, Undeposited Funds can accumulate old transactions or contribute to duplicate income.
A bookkeeper should monitor this account and investigate balances that should not be there.
Recording Loans Correctly
Loan payments are another area where bookkeeping mistakes are common.
If your business makes a $2,000 loan payment, the entire $2,000 usually should not be recorded as an expense.
A payment may include:
- Principal
- Interest
- Fees
The principal reduces the loan balance on the Balance Sheet. Interest and certain fees may be recorded as expenses.
A bookkeeper can record payments according to the loan statement and help make sure the balance in the accounting records agrees with the lender’s records.
Keeping Track of Payroll Activity
Payroll involves much more than recording the amount that leaves the bank.
Depending on the services provided, a bookkeeper may:
- Record payroll expenses
- Track payroll liabilities
- Review payroll reports
- Reconcile payroll accounts
- Verify payroll transactions are posting to the correct accounts
- Assist with payroll tax filings
- Help identify payroll discrepancies
Payroll has an effect on both the Profit and Loss Statement and the Balance Sheet, so it is important that it is recorded correctly.
Tracking Sales Tax
For businesses that collect sales tax, bookkeeping includes monitoring sales tax liabilities and making sure payments are recorded correctly.
The sales tax collected from customers is not income to the business. It is money collected on behalf of a taxing authority.
A bookkeeper may help:
- Track the liability
- Review sales tax reports
- Record payments correctly
- Identify discrepancies
- Assist with filing sales tax returns if that service is included
Tracking Fixed Assets and Major Purchases
Not every purchase should immediately be recorded as an expense. Vehicles, equipment, furniture, computers, machinery, and other significant purchases may need to be recorded as assets.
A bookkeeper can identify these purchases, record them appropriately, and provide the information to the business’s tax preparer.
The tax professional can then determine the appropriate tax treatment and depreciation expense.
Helping Keep Business and Personal Activity Separate
One of the foundations of good bookkeeping is keeping business and personal transactions separate.
When personal expenses appear in a business account, the bookkeeper needs to identify them and record them appropriately.
The same applies when an owner uses personal funds to pay a legitimate business expense.
A good bookkeeper does not simply make an expense disappear because it was paid from the “wrong” account. The transaction still needs to be accounted for correctly.
Understanding Your Business’s Tax Entity Type
A bookkeeper should understand how your business is taxed, because the same transaction may need to be recorded differently depending on the business’s tax entity type.
It is not enough to know that a business is an LLC. An LLC might be taxed as a:
- Sole proprietorship
- Partnership
- S corporation
- C corporation
That distinction matters.
For example, an owner of an S corporation who performs services for the corporation is generally treated as an employee and should receive reasonable compensation through payroll. Payments to the shareholder also need to be distinguished between wages, shareholder distributions, reimbursements, loans, and other types of transactions.
A partner in a partnership, on the other hand, is generally not an employee of the partnership and should not receive a W-2 for services performed as a partner. Depending on the circumstances, payments for services may be treated as guaranteed payments to the partner.
Benefits can also require different accounting treatment depending on who receives them.
For example, a more-than-2% shareholder of an S corporation cannot participate in employee fringe benefit programs in the same way as a non-owner employee. Health insurance premiums paid or reimbursed by the S corporation for a more-than-2% shareholder generally require special payroll and tax reporting treatment.
The same is true for many other owner-related transactions.
A bookkeeper may need to distinguish between:
- Wages
- Owner’s draws
- Shareholder distributions
- Partner distributions
- Guaranteed payments
- Shareholder or partner contributions
- Loans to or from owners
- Health insurance and other benefits
- Business expenses paid personally by an owner
- Personal expenses paid by the business
Recording these transactions incorrectly can affect both your financial statements and the information ultimately reported on your tax return.
This is one reason your bookkeeper should know your business’s legal structure and tax classification and should be willing to coordinate with your tax professional when the proper treatment of a transaction is unclear.
Your bookkeeper does not need to make tax elections or replace your tax advisor. But your bookkeeper does need to understand enough about your tax entity type to recognize when it affects how a transaction should be recorded.
Knowing how to use QuickBooks is important. Knowing why a transaction should be recorded a particular way is just as important.
Looking for Things That Don’t Make Sense
This is one of the most valuable parts of professional bookkeeping. Bookkeepers do not just record what happened. They should also pay attention to whether the results make sense.
That means noticing:
- A bank account has not been reconciled in months.
- Gross profit suddenly changed significantly.
- An expense is much higher than normal.
- Accounts Receivable keeps growing.
- A customer has a very old outstanding balance.
- A loan balance is negative.
- Undeposited Funds contains old transactions.
- A credit card has a strange balance.
- Payroll liabilities are accumulating.
- Income appears to have been recorded twice.
Sometimes bookkeeping requires a little detective work.
When something looks wrong, a good bookkeeper asks questions and investigates, instead of assuming everything is fine.
Preparing Financial Statements
Once the transactions are recorded, accounts are reconciled, and balances have been reviewed, the bookkeeper can prepare financial reports.
These may include:
Profit and Loss Statement – Shows your income and expenses over a period of time and shows whether the business generated a profit or loss.
Balance Sheet – Shows what the business owns, what it owes, and the owner’s equity at a specific point in time.
Statement of Cash Flows – Shows how cash moved through the business.
Accounts Receivable Aging – Shows who owes your business money and how long those balances have been outstanding.
Accounts Payable Aging – Shows what your business owes vendors and when those amounts are due.
Additional reports may be needed depending on the business and industry.
Providing Industry-Specific Bookkeeping
Not every business should be accounted for exactly the same way.
A construction company, for example, may need bookkeeping that includes:
- Job costing
- Retainage receivable and payable
- Work in progress
- Overbillings and underbillings
- Job profitability
- Labor and material cost tracking
Other industries may need different reports or accounting processes.
This is one reason experience matters when choosing a bookkeeper.
Your bookkeeper should understand not only QuickBooks, but also how your type of business operates.
Helping Get Your Books Ready for Tax Preparation
Good bookkeeping should make tax season easier.
At year-end, your bookkeeper may work with your CPA or tax preparer to provide information such as:
- Financial statements
- General ledger reports
- Bank reconciliations
- Loan information
- Fixed asset purchases
- Payroll reports
- Accounts Receivable
- Accounts Payable
- Other requested schedules
Your tax preparer may then provide year-end adjustments for depreciation, taxes, or other items.
The goal is for your tax professional to receive organized, accurate, tax-ready books rather than spending tax-preparation time trying to determine what happened during the year.
What Doesn’t a Bookkeeper Automatically Do?
This is an important question because the word “bookkeeping” can mean different things to different people.
Hiring a bookkeeper does not automatically mean that person will:
- Pay your bills
- Send customer invoices
- Collect past-due accounts
- Run payroll
- File payroll tax returns
- File sales tax returns
- Prepare income tax returns
- Create budgets or forecasts
- Provide tax planning
- Make financial decisions for your business
Some bookkeepers offer some or all of these services. Others do not.
The responsibilities should be clearly defined when you hire someone.
Bookkeeping Is More Than Data Entry
Technology has changed bookkeeping. QuickBooks can connect to your bank. Software can import transactions. Rules can automatically suggest categories. Artificial intelligence can make recommendations. But technology does not eliminate the need for someone to understand what the numbers mean.
Software can see that $5,000 left your bank account. A knowledgeable bookkeeper asks: What was the $5,000 for?
Was it an expense?A loan payment?Equipment?A credit card payment?An owner’s distribution?A duplicate transaction?
The answer matters.
That is the difference between simply putting transactions into accounting software and maintaining accounting records that a business owner can rely on.
What Should a Good Bookkeeper Give You?
Ultimately, good bookkeeping should give you more than organized transactions.
It should give you:
- Accurate financial records
- Reconciled accounts
- Organized supporting information
- Financial statements you can rely on
- Fewer surprises at tax time
- Better information for conversations with your CPA, lender, or other advisors
- A clearer understanding of what is happening financially in your business
Your books should tell the story of your business.
A good bookkeeper helps make sure they are telling the right story.
Are Your Books Behind? Please Don’t Be Embarrassed.
If your bookkeeping is months—or even years—behind, you may be putting off asking for help because you are embarrassed about the condition of your books.
Please don’t be.
A professional bookkeeper is not there to judge you.
Business owners fall behind for all kinds of reasons. Maybe your business grew faster than you expected. Maybe bookkeeping kept getting pushed to the bottom of a very long to-do list. Maybe you tried to do it yourself and realized you weren’t sure whether you were doing it correctly. Maybe someone else was handling the books and you later discovered there were problems. Or maybe life simply happened.
Whatever the reason, being behind is a bookkeeping problem to solve—not something to be ashamed of.
You do not need to clean everything up before you contact a bookkeeper. In fact, that is often exactly what you are hiring the bookkeeper to help you do.
You also do not need to understand everything that is wrong.
Start with what you have.
Bank statements can be gathered. Accounts can be reconciled. Transactions can be reviewed. Mistakes can be corrected. Missing information can be identified. And messy books can be cleaned up.
It may take some time, and there may be questions along the way, but there is usually a path forward.
The most important thing is to stop avoiding the problem because you are worried about what someone might think.
I would much rather have you call me and say, “Paula, my books are a mess and I don’t even know where to start,” than spend another six months worrying about them.
That’s a perfectly good place to start.
Need Help With Your Bookkeeping?
If your books are behind, your accounts have not been reconciled, you are unsure whether your QuickBooks file is accurate, or bookkeeping is simply taking too much of your time, professional help may be the next step.
At Melton Bookkeeping & Accounting Services, I work with established small businesses that want accurate, organized, tax-ready books—and someone who is willing to look beyond the transactions and ask questions when something doesn’t make sense.
Whether you are one month behind or you have not looked at QuickBooks in a very long time, you don’t have to get everything straightened out before you call.
Call Melton Bookkeeping & Accounting Services at 417-630-0057. Let’s talk about where your books are today and what it will take to get them where they need to be.
