Unit 3 Reading Activities Plus Questions

Bookkeeping is the foundation of accounting and is just as, if not even more important than some of the more 'glamorous' accounting work. So why are bookkeepers seen as being less important to the success of an accounting department than accountants? Well to get the answer to this, it is important to understand what exactly bookkeeping is.

Bookkeeping within a business is basically the recording of any financial transactions. These transactions include purchases, sales, receipts and payments- in fact just about every financial transaction.

A lot of people think that bookkeeping and accounting is the same thing, but this is wrong. The confusion comes from the fact that bookkeeping is an element of the accounting process. Accountants create reports from the financial transactions, which were recorded, and file the appropriate forms with the government. But it is the bookkeeper who provides the accountant with the source information which these reports are based on. So without the bookkeeper the accountant would be forced to spend a great amount of time recording every transaction.

It is also incorrect to think that bookkeeping is easy. Bookkeepers use one of several methods of recording transactions, the single entry bookkeeping system and the double entry bookkeeping system being the most common. Of these methods, it is universally recognised that double entry bookkeeping is a more effective system for accounting. By using double entry you can prove the accuracy of the records to ensure that the two sides agree. This being said double entry bookkeeping is known for being difficult, with some qualified accountants not completely understanding it.

The double entry system works by recording two sides to each income or expenditure transaction. For example, if you buy a new computer for the office the two sides would be that: the amount of money in your bank account would decrease and the value of assets in the office would increase. This follows the accounting equation that assets - liability = capital.

Traditionally, bookkeepers kept written records in the form of daybooks, sales ledgers, purchase ledgers and other journals. Recently, computerised accounting programmes have overtaken these in popularity as they allow bookkeepers to record transactions faster and at the same time automatically generate reports based on the figures. In the traditional paper form bookkeeping required an exact knowledge of which transactions should be posted into which T-accounts, now a bookkeeper can do the same job by memorising the nominal code attached to an account.

Although automated bookkeeping software has made bookkeeping easier, it is still an area of great difficulty for anyone without suitable training or experience. Bookkeeping, as with accounting, requires a thorough understanding of the system which is being used and the effects of the transactions being posted.

In the single entry system, each transaction is recorded only once. This means that the record does not accurately show the effect of the transaction and as such is less effective. Single entry bookkeeping is often used by sole-traders starting out in business as it requires little expert knowledge. In fact most people who have balanced their chequebook have used a single entry system.

Bookkeepers bring 'the books' to the trial balance stage at which point the work is passed to the accountant to prepare the income statement and balance sheet using the work prepared by the bookkeeper.

Bookkeepers usually also deal with petty cash and authorize its use, VAT returns and personal tax returns. In fact, just about any 'accounting' function that doesn't require an official statement from a certified accountant.

In effect anyone working on accounts preparation before this stage can be labelled as a bookkeeper although most people prefer a more formal title such as accounts payable. Self-employed bookkeepers face the added difficulty of having to deal with clients who have either incomplete or disorganized financial records and as a result have to spend hours wading through boxes of receipts before they can start recording the financial information contained in these receipts.

Unfortunately a lot of people remain unaware of the complexity of the role of the bookkeeper, and the term is now more commonly used to show an individual preparing basic financial records rather than a member of a professional accounting team.