Business people with the job title Bookkeeper may perform a very wide range of clerical and administrative tasks, but the central activity associated with bookkeeping is, "keeping the books," especially the journals and ledgers that record all of the organization's financial transactions.
The Bookkeeper's Journal
Bookkeepers are normally first in the firm to enter transactions that impact the firm's accounts into the accounting system, wherever entries are made manually (either with an onscreen form or into a bound notebook).
In either case, the bookkeeper's record log is called the accounting system journal, which and it contains a complete list of transactions, in order they occur. Each bookkeeping journal entry contains at least :(1)
- The date
- The kind of transaction (Debit or Credit)
- The account impacted (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.
Example Transactions for the Bookkeeper's Journal
Below are just a few basic examples of debits and credit entries that bookkeepers make continuously.
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 Corporation sends Apollo an invoice for $37,200. The invoice states "Net 30," meaning that Apollo must pay Magnus Corporation in 30 days or less.
At sale closing, a Magnus bookkeeper recognizes the sale with two journal entries such as these:
Journal for Fiscal Year 20YY
| NNN Accounts receivable
NNN Sales revenues
The sale to Apollo becomes an Account receivable for Magnus Corporation. As a result, Magnus's Accounts receivableaccount balance increases by (is debited for) $37,200. Magnus also claims sales revenues at this time by simultaneously 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 not yet paid.
While the bill is unpaid, Magnus and Apollo have a creditor-debtor relationship. The seller (Magnus) carries another $37,200 in its own Accounts receivable account, while the buyer (Apollo) adds (credits) $37,200 to its own Accounts payable account, a liability account.
Second Example: The Customer Finally Pays in Cash
What happens next depends on whether or not Apollo actually 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 have kept the sale on the books while Grande waits for Apollo's payment. With payment, Cash increases by $37,200 while Accounts receivable is decreases by the same amount.
Explaining the Bookkeeper's Role in Context
Sections below further explains and illustrate bookkeeping in context with related business concepts from the fields of accounting and financial reporting.
- What is a bookkeeper and what is bookkeeping?
- What is the bookkeeper's role in the accounting cycle?
- What are the education and skill requirements for bookkeepers?
- See the article Accountant and Accounting for more on the shared roles of bookkeepers and accountants in the accounting cycle.
- Accrual Accounting provides an introduction to basic concepts in financial accounting.
- The following articles describe the accountants 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.
When an employee turns in an expense receipt, when a customer is invoiced, when a vendor is paid, or when any other transaction occurs, it is the bookkeeper's responsibility to enter the transaction first in a journal and then, later to see that journal entries are posted to a ledger. These activities in fact are the initial steps in the accounting cycle .
Exhibit 1 below shows the Bookkeeper's role in accounting cycle steps that result in published financial reports.
At the end of each accounting period, the cycle is typically completed by accountants, who use the 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 often serve as the point of contact between the organization and customers or venders, who actually makes the transaction. Bookkeepers, for instance, may calculate, prepare, and distribute employee paychecks or payments to vendors. 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 approval is required for specific payments.
Note that with the introduction of software-based accounting system, over the last few decades, the distinction between accountant roles bookkeeping roles have blurred—especially in small firms. In small firms, bookkeepers often "work into" the accounting role and become responsible for the status of the entire accounting system. Or, increasingly often, small firms simply employ one accountant, who is responsible for all bookkeeping and accounting tasks.
Skill requirementsfor the bookkeeper include a good command of double entry bookkeeping and a thorough familiarity with the organization's chart of accounts. This is because, under the double entry system, every financial event requires 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 actually software applications, parts of the organization's accounting/bookkeeping system. Thus, fundamental skills required for working as a bookkeeper also include the ability to use bookkeeping software and other 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.