Business people with the job title Bookkeeper may perform a wide range of clerical and administrative tasks, but the central activity associated with bookkeeping is, literally, "keeping the books,"
The Bookkeeper's Journal
Bookkeepers are normally first to enter transactions that impact the firm's accounts into the accounting system. The bookkeeper's traditional point of entry for all transactions is the Journal—a notebook or electronic record specificaly for that purpose. Some firms, however, use an even earlier point of entry—the Daybook or Book of Original Entry.
Historically, bookkeeping journals were always bound as sewn-page notebooks in which bookkeepers hand-wrote entries in ink. Bookkeepers penned entries shortly after the business incurs an expense, closes a sale, earns revenue, or otherwise impacts the firm's accounts in any way.
Now, of course, journals usually exist onscreen as part of accounting system software. Bookkeepers and other users, therefore, enter journal transactions either manually, through onscreen forms, or automatically, as with a point-of-sale system.
Accounting software, moreover, provides guidance and error-checking to ensure that entries register correctly as debits or credits in the appropriate accounts. And, the software also automates the second stage of the accounting cycle, posting journal entries to a ledger.
The name "journal," from Old French and Latin origins, suggests a daily activity (jour is French for "day"). Personal diaries and newspapers are also journals for the same reason. While other accounting records may update less frequently, journals update either continuously or at least daily. As a result, the journal builds a running list of account transactions as they occur.
Each bookkeeping journal entry contains at least :
- The date
- The nature of the transaction (Debit or Credit)
- An account to impact (by name and number from the Chart of Accounts)
- A financial value for the transaction.
The bookkeeper's journal is thus a chronological record: should anyone ask which transactions occurred on a given day, the journal provides an answer.
Explaining the Bookkeeper's Role in Context
Sections below further explain bookkeeping in context with similar business concepts from accounting and financial reporting, emphasizing three themes:
- First, the bookkeeper's primary role as "Keeper of the Books," where the firm uses double-entry bookkeeping and accrual accounting.
- Second, bookkeeper's responsibilities in the age of "continuous accounting," and with transaction entries coming from multiple sources.
- Third, educational and work experience requirements for a career in bookkeeping.
- What is a bookkeeper and what is bookkeeping?
- What is the bookkeeper's role in the accounting cycle?
- Example bookkeeper transactions.
- What are the education and skill requirements for bookkeepers?
- See Accountant and Accounting for more on bookkeepers and accountants overlapping roles in the accounting cycle.
- Accrual Accounting provides an introduction to basic concepts in financial accounting.
- The following articles describe the accountant's role in more detail for specific steps in the accounting cycle.
- For more on the role of cost accountants in budgeting and variance analysis, see Budget and Budgeting.
The bookkeeper is responsible for entering transactions in the journal whenever an employee turns in an expense claim, or when the firm invoices a customer, pays a vendor, receives payment, secures a loan, declares dividends, or when any other transaction that impacts accounts occurs. Later, the bookkeeper is responsible for seeing that journal entries post to a ledger. These activities are the initial steps in the accounting cycle.
Exhibit 1 below shows the normal steps in the accounting cycle. Bookkeepers focus especially on journal and ledger activities.
At the end of each accounting period, accountants use ledger entries to create trial balances, correct errors, and produce the period's financial statements such as the income statement and balance sheet.
In addition to recording transactions, bookkeepers can serve as a point of contact between the organization and customers or vendors. Bookkeepers, for instance, may calculate, prepare, and distribute employee paychecks or issue vendor payments. They may be responsible for calculating, preparing, and sending invoices to customers. They may be responsible for other activities, such as reconciling the organization's bank statements, determining when customer payments are overdue and starting collection procedures, or determining which level of management must approve specific payments.
Note that with the arrival of software-based accounting systems, the distinction between accountant roles bookkeeping roles are blurring—especially in small firms. In some cases, bookkeepers can "work into" the accounting role and become responsible for the status of the entire accounting system. Alterntively, small firms may employ one accountant, who is responsible for all bookkeeping and accounting tasks.
Bookkeepers are normally active, continuously, making debit and credit entries like the examples below.
First Example: Creating the Receivable
Consider, for example, a manufacturer selling goods to another business. On 18 October, Magnus Corporation sells and delivers a product purchase to the buyer, Apollo Corporation.
At the same time, Magnus sends Apollo an invoice for $37,200. The invoice states "Net 30," meaning that Apollo must pay Magnus Corporation in 30 days or sooner.
At sale closing, a Magnus bookkeeper recognizes the sale with journal entries like these:
Journal for Fiscal Year 20YY
| NNN Accounts receivable
NNN Sales revenues
The sale to Apollo becomes an Account receivable for Magnus, so Magnus's Accounts Receivable account balance increases (is debited) $37,200. Magnus simultaneously claims sales revenues by increasing (crediting) its Sales revenues account by the same $37,200.
The receivable now exists, and sales revenues are now "on the books," even though Apollo has yet to pay.
While the bill is unpaid, Magnus and Apollo have a creditor-debtor relationship. The seller (Magnus) carries $37,200 in its Accounts Receivable account, as the example above shows, while the buyer (Apollo) adds (credits) $37,200 to its Accounts Payable account, a liability account.
Second Example: The Customer Finally Pays in Cash
What happens next depends on whether or not Apollo pays Magnus Corporation. If Apollo pays in cash within 30 days or less, say on 15 November, Grande Corporation (the seller) preserves $37,200 in sale value by moving that sum out of Accounts receivable and into another asset account, Cash.
Journal for Fiscal Year 20YY
| NNN Cash
NNN Accounts receivable
The bookkeeper's use of double-entry bookkeeping and accrual accounting keep the sale "on the books" while Magnus waits for Apollo's payment. When Apollo does pay, Magnus Cash increases by $37,200 and Accounts receivable is decreases by the same amount.
Skill requirements for the bookkeeper include a good command of double-entry bookkeeping and a thorough familiarity with the organization's chart of accounts. This knowledge is necessary because, under double-entry bookkeeping, every financial event calls for two bookkeeping entries, one a debit to one account, and the other an equal, offsetting credit to another account.
Moreover, in almost all organizations now, the bookkeeper's "books" are software applications, parts of the organization's accounting/bookkeeping system. Thus, essential bookkeeping skills also include the ability to use bookkeeping software and office applications such as spreadsheets and word processors.
Bookkeeping normally does not require a four-year college degree, but most positions typically do require a high school diploma and some post-high school training in basic business knowledge and bookkeeping skills.