All about the bookkeeper

All about the bookkeeper

We all heard the term bookkeeper, but what is a definition of a bookkeeper. At the end of this article you will probably know All about the bookkeeper. The bookkeeper is the person that records the day-to-day financial transactions of the business or company.  The bookkeeper is responsible for writing the daybooks which are also known as journals or books of first entry. The daybooks contain records of purchases, sales,

The daybooks contain records of purchases, sales, receipts, and payments.  The bookkeeper is responsible for ensuring that all transactions of the business, whether it is cash transactions or credit transactions, are recorded in the correct daybook.  That would be the general ledger, the supplier’s ledger, and customer’s ledger.

When the financial transactions are recorded by the bookkeeper the accountant can create reports that contain the information that is supplied by the bookkeeper.  The bookkeeper brings the books to the trial balance stage however, an accountant may prepare the income statement and balance sheet by using the trial balance and ledgers prepared by the bookkeeper.

Financial statements are drawn from the trial balance which may include:

  • The Income statement – statement of financial results, profit and loss account
  • The Balance Sheet – statement of financial position
  • The Cash flow statement
  • The Statement of changes in Equity – statement of total recognized gains and losses

There are two common bookkeeping systems used by businesses/companies or any other organizations. They are the single-entry bookkeeping system and the double-entry bookkeeping system.

 

All about the bookkeeper

Single Entry system:

Single-entry bookkeeping is adequate for many small businesses/companies.  The primary bookkeeping is the cash book, which is similar to a checking account register but allocates the income and expenses to various income and expenditure accounts.  Separate account records are maintained for petty cash, accounts payable and receivable and for other relevant transactions such as inventory (stock) and traveling expenses.  Nowadays single entry bookkeeping can be done via bookkeeping software on computers which can speed up manual calculations.

 

Double Entry system:

Double entry accounting system requires at least two accounting entries to record each financial transaction.  These entries may occur in asset, liability, equity or revenue accounts.  A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.

 

Bookkeeping through the Ages

Luca Pacioli is regarded as the Father of Accounting and Bookkeeping and he was known as the mathematical monk.  In the 15th century, the Italian monk Luca Pacioli revamped the common bookkeeping structure and laid the ground work for modern accounting.  Pacioli  published a textbook in 1494 that showed the benefit of a double entry system for bookkeeping.

The idea was to list an entity’s resources separately from any claims upon those resources by other entities.  In the simplest form, this meant creating a balance sheet with debits and credits separated.  This innovation made bookkeeping more efficient and provided a clearer picture of a company or business’ overall strength. These ‘sheets’ or documents were only for the owner who hired the bookkeeper and general public did not get to see these records.  Bookkeepers most likely emerged when society was still in the barter and trade system (pre-2000BC) rather than a cash and commerce economy that we have now.  Ledgers from these times read like narratives with dates and descriptions of trades made or terms for service rendered for example:

January 1st Wednesday – I exchanged 1 jersey cow to Mr. Brown the chicken farmer, for 12 of his prime chickens.

January 3rd Friday – Mr. Wood the carpenter agreed to build a chicken pen in exchange for freshly delivered eggs each morning for 6 months.

All of these transactions were kept in individual ledgers and if a dispute arose, they provided proof when matters were brought before magistrates.  Although it was long-winded and dreary, the system of detailing every agreement was ideal in this era because long periods of time could pass before transactions were completed.

As the years passed currencies became available and tradesmen and merchants began to build material wealth and so thus bookkeeping also evolved.  Merchants would employ bookkeepers to keep a record of who owed them and what they owed to others.  Till the late 1400’s information or records, was still arranged in a narrative style with all the numbers in a single column whether an amount paid owed or otherwise.  What we now called as single entry bookkeeping for example:

Date Detail of items Amount
January 1st  Wednesday Bought 12 chickens from Mr. Brown -R150
January 1st Wednesday I sold 1 Jersey cow to Mr. Brown +R150
January 3rd Friday Bought a chicken pen from Mr. Wood -R200
January 3rd Friday Sold 6 months worth of eggs to Mr. Wood +R200

 

It was a necessity for the bookkeeper to read the description of each entry to decide whether to deduct or add when calculating something simple as monthly profit or loss.  Back in the day, it was very tiring, inefficient and time-consuming to tally things.  Example of a basic double-entry bookkeeping:

Debit Credit
Sold 1 Jersey Cow Debit Cash R150
Credit  Jersey Cow R150
Bought 12 chickens Debit chickens R150
Credit Cash R150
Sold eggs for 6 months daily delivery Debit cash R200
Credit eggs R200
Bought chicken pen Debit Labor for poultry produce R200
Credit cash R200

Understanding some of the different books in Bookkeeping

Daybooks – A daybook is a descriptive and chronological (diary-like) record of day to day financial transactions also called a book of original entry.  The daybook’s details must be entered formally into journals to enable posting to ledgers.  Daybooks include the following:

  • Sales daybook for recording all the sales invoices
  • Sales credits daybook for recording all the sales credit notes
  • Purchases daybook for recording all the purchase invoices
  • Purchases Debits daybook for recording all the purchase Debit notes
  • Cash daybook usually known as the Cash Book for recording all monies received as well as monies paid out.  It may be split into two daybooks –  receipts daybook for monies received in and payments daybook for monies paid out
  • General Journal daybook for recording journals

Petty Cash book – A petty cash book is a record of small value purchases before they are later transferred to the ledger and final accounts.  It is maintained by a petty or junior cashier.  This type of cash book usually uses the imprest system:  a certain amount of money is provided to the petty cashier by the senior cashier. This money is to cater for minor expenditures such as hospitality, minor stationery, casual postage etc. This money is reimbursed periodically on satisfactory explanation of how it was spent.

Journals –  Journals are recorded in the general journal daybook.  A journal is a formal and chronological record of the financial transactions before their values are accounted for in the general ledger as debits and credits.  A company/business can maintain one journal for all transactions or keep several journals based on similar activity for e.g.: sales, cash receipts, revenue etc, making transactions easier to summarize and reference later on.  For every debit journal entry recorded, there must be an equivalent credit journal entry to maintain a balanced accounting equation.

Ledgers – A ledger is a record of accounts.  The ledger is a permanent summary of all amounts entered in supporting Journals which list individual transactions by date.  These accounts are recorded separately, showing their beginning/ending balance.  A journal lists financial transactions in chronological order, without showing their balance but showing how much is going to be charged in each account.  A ledger takes each financial transaction from the journal and records it into the corresponding account for every transaction listed.  The ledger also sums up the total of every account which is transferred into the Balance sheet and the Income statement.  There are three different kind of ledgers that deals with bookkeeping:

Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of the records of the financial transactions made by customers to the business.

Purchase ledger is the record of the purchasing transactions a company does; it goes hand in hand with the Accounts Payable accounts.

Charts of Accounts

A chart of accounts is a list of the accounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger. The equity section of the chart of accounts is based on the fact that the legal structure of the entity is of a particular legal type. Possibilities include sole trader, partnership, trust, and company.

Computerised Bookkeeping

Computerised bookkeeping removes many of the paper “books” that are used to record the financial transactions of an entity—instead, relational databases take their place, but they still typically enforce the double-entry bookkeeping system and methodology.

Abbreviations used in Bookkeeping

  • A/C – Account
  • Acc – Account
  • A/R – Accounts receivable
  • A/P – Accounts payable
  • B/S – Balance sheet
  • c/d – Carried down
  • b/d – Brought down
  • c/f – Carried forward
  • b/f – Brought forward
  • Dr – Debit
  • Cr – Credit
  • G/L – General ledger; (or N/L – nominal ledger)
  • P&L – Profit and loss; (or I/S – income statement)
  • P/R – Payroll
  • PP&E – Property, plant and equipment
  • TB – Trial Balance
  • GST – Goods and services tax
  • VAT – Value added tax
  • CST – Central sale tax
  • TDS – Tax deducted at source
  • AMT – Alternate minimum tax
  • EBITDA – Earnings before interest, taxes, depreciation and amortisation
  • EBDTA – Earnings before depreciation, taxes and amortisation
  • EBT – Earnings before tax
  • EAT – Earnings after tax
  • PAT – Profit after tax
  • PBT – Profit before tax
  • Depr – Depreciation
  • Dep – Depreciation
  • CPO – Cash paid out
  • CP – Cash Payment

The basic function of a Bookkeeper

The function of a bookkeeper is to create financial transactions and create financial reports from that information.  The creation of financial transactions includes posting information to accounting journals or accounting software like Quickbooks, Pastel etc.   The bookkeeper also reconciles accounts to assure their accuracy. To do this job effectively, you must have detail-oriented skills that allow you to keep with the company’s expenditures, income payroll. and tax requirements.

Principal Accountabilities

  • Assist accountants on tax return preparations
  • Purchase supplies
  • Monitor office supply levels and record as necessary
  • Tag and monitor fixed assets
  • Pay supplier invoices in a timely manner
  • Take all reasonable discounts on supplier invoices
  • Pay any debts as it comes due for payment
  • Monitor debt levels and compliance with debt covenants
  • Issue invoices to customers
  • Collect sales taxes from customers and remit them to the government
  • Ensure that receivables are collected promptly
  • Record cash receipts and make bank deposits
  • Conduct periodic reconciliations of all accounts to ensure their accuracy
  • Maintain the petty cash fund
  • Issue financial statements
  • Provide information to the external accountant who creates the company’s financial statements
  • Assemble information for external auditors for the annual audit
  • Calculate and issue financial analysis of the financial statements
  • Maintain and orderly accounting filing system
  • Maintain the chart of accounts
  • Maintain the annual budget
  • Calculate variances from the budget and report significant issues to management
  • Process payroll in a timely manner
  • Provide clerical and administrative support to management as requested

Education and Skills required for a bookkeeper

Even though a Matric Certificate/High school certificate can get your foot in the door as to becoming a Bookkeeper, some companies prefer to hire bookkeepers with further, formal education which you can obtain at Skills Academy – www.skillsacademy.co.za. Previous clerical experience and knowledge of accounting software programs are also beneficial in applying for a bookkeeper position. While some companies, on the other hand, have desired qualifications for a bookkeeper such a degree in Accounting or Business administration or equivalent business experience, as well as knowledge of bookkeeping and generally accepted accounting principles.

  • A minimum of two years responsible bookkeeping or accounting experience including accounts payable, accounts receivable, pay roll, general ledger, and financial reports
  • Ability to perform several tasks synchronically with ease and professionalism
  • Ability to operate calculator, computer, and other general office equipment
  • Knowledge of computerized accounting
  • Ability to do a manual set of books
  • Knowledge of regulatory requirement of processing payroll accounting transactions and payroll returns
  • Ability to communicate clearly and concisely, verbally and in writing in English
  • Must be able to keep the client’s matters strictly confidential
  • Enjoy working with numbers
  • Must be highly organized and good administrative skills
  • Display high levels of integrity, as bookkeepers work with money and sensitive financial data
  • Good at meeting deadlines
  • Have good attention to detail

Bookkeeper VS Accountant

Although a Bookkeeper and an Accountant share common goals and common ground, they each have a different role to play in any company. When there is a successful relationship between the bookkeeper and the accountant, it could contribute to the long-term financial success of the company/business

Bookkeeper Accountant
Records financial transactions Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
Posting debits and credits Preparing company financial statements
Producing invoices Analyzing costs of operations
Maintaining and Balancing subsidiaries, general ledgers and historical accounts Completing income tax returns
Completing payrolls Aiding the company/business owner in understanding the impact of final decisions

All experienced or certified bookkeeper may eventually move into being an accountant (the terminology and rules on what a bookkeeper may do can call themselves may be dictated by state accounting boards).  Many bookkeepers start off as a data-entry clerk or entry-level bookkeeper for any business/company and grow within the business/company, through gaining experience and merit, into being a go-to person for the day to day financial recording.  If this is the job for you or the career path that you want to start, log onto www.skillsacademy.co.za for more information and courses on becoming a Bookkeeper. Skills Academy offers the following range of Bookkeeping courses:

  • ICB Short course: Junior Bookkeeper – Payroll and Monthly SARS Returns
  • ICB Short course: Junior Bookkeeper – Business Literacy
  • ICB Short course: Senior Bookkeeping – Financial Statements
  • ICB Short course: Junior Bookkeeper – Computerised Bookkeeping
  • ICB Short course: Junior Bookkeeper – Bookkeeping to Trial Balance
  • ICB Short course: Senior Bookkeeping – Cost and Management Accounting

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Last updated: November 11th 2016