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What Is Bookkeeping?

Bookkeeping is the systematic recording of financial transactions, a foundational process in managing a business's financial health. It tracks all money flowing in and out, ensuring accuracy and legal compliance. By maintaining detailed financial records, businesses can make informed decisions. How might effective bookkeeping be the key to unlocking your business's potential? Continue reading to uncover the possibilities.
Nicole Madison
Nicole Madison
Nicole Madison
Nicole Madison

Bookkeeping, also referred to as keeping the books, is the process of keeping full, accurate, up-to-date business records. Proper methods can help businesses effectively manage cash flow, stay abreast of profits and losses, and develop plans for the future based on financial trends. Furthermore, keeping accurate books is required by both federal and local tax agencies.

The bookkeeping process involves making a record of the monies received by a business as well as the monies paid out. It encompasses money a company owes to vendors, employees, tax agencies, contractors, and any other individual or entity. Likewise, accurate records of amounts owed to a company by outside individuals and organizations are also recorded in a company's books.

A bookkeeper reviewing a company's ledger book.
A bookkeeper reviewing a company's ledger book.

Though necessary and beneficial to business owners, the task can be very time consuming. With no exceptions, every monetary amount that is paid or received must be recorded. Additionally, accuracy is of the utmost importance, making keeping the books in a rushed manner a very bad idea. As business owners are often lacking in time, many choose to hire professional bookkeepers to keep company records well maintained.

Of the many reasons for keeping accurate records, business and income taxes are among the most important. In the United States, for example, the Internal Revenue Service requires business owners to keep financial records that are complete and up-to-date. State and city tax agencies may require businesses to maintain accurate records as well. In fact, a business owner who fails to keep acceptable financial records may be liable for significant monetary fines or other penalties.

A company's books are used to determine the amount of taxes the company must pay, and they are also used in preparing tax returns. Sometimes, a tax agency may decide to investigate the information reported on a return or other type of tax-related document. In such cases, business owners are required to present accurate records for the tax agency's inspection. Failure to do so could lead to hefty fines, penalties, or in severe cases, imprisonment.

Although hiring bookkeeping professionals may be a good idea for many companies, not all business owners can afford to do so. This is particularity true of smaller, home-based, or start-up businesses. Fortunately, there are many computer programs designed to make the task of keeping the books manageable and less time consuming. Many programs handle all of the calculations for the user, taking the worry out of keeping accurate figures. Available even to those on tight budgets, this software makes record keeping easy.

For businesses looking for a reliable accounting program, NetSuite accounting software is a great choice. It is a powerful, cost-effective bookkeeping system that not only helps businesses stay compliant with taxes, but it also provides accurate financial information and insights. The software is easy to use and helps organizations manage their finances more efficiently. It is a great resource for businesses of all sizes and budgets, and it is sure to make the bookkeeping process easier and more efficient.

Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a SmartCapitalMind writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

Learn more...
Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a SmartCapitalMind writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

Learn more...

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Discussion Comments


I have a small home based business and take care of the books for this myself. I rely on software programs and online tax preparation services to help me. Once I found a software program that I really liked, it made the bookkeeping a whole lot easier.

As long as I am consistent about putting in the correct information, the program pretty much takes care of everything else. I have saved quite a bit of money doing this myself, but my business is small and so it doesn't take that much time. As my business grows I feel like I have the experience and tools to be able to continue doing my own bookkeeping.


I went to college one year after high school and got my bookkeeping certification. I worked for the same company for 25 years doing their accounts receivable.

When this company started downsizing, I was out of a job and realized my bookkeeping certificate was not very valuable. Even though I had years of bookkeeping training and experience, most companies were looking for someone who had a four year college degree.

I ended up going back to school to get my degree in accounting and realized this was something I should have done a long time ago. It was much easier to find a bookkeeping job when I had a degree than it was with several years of experience and no degree.


@SarahSon -- I think it comes down to personal preference, but when I realized I needed some help with keeping up with our bookkeeping I went with a local service. I looked into some of the online services and felt like they were reasonable as far as their fees, but like you, felt a little uneasy about entrusting all my information to strangers.

I have really enjoyed not having the full responsibility of the bookkeeping on my shoulders. One of the biggest reasons I like using a local service is I can stop in their office and talk with them face to face any time I need to. For me, I would rather do it this way than use a service that is half way across the country and I may never personally meet.


@anon219172 -- I use bookkeeping software for keeping track of the books for our small business but never thought about using an online bookkeeping service. There are many times I don't feel like I have the time to keep up with the books as well as I should. This sounds like it would take a load off my shoulders, yet I don't know if I would trust using an online service. Has anyone else used an online service like this they would recommend?


This was very informative! However, I am not really good at bookkeeping and do not have extra time and patience to do it on my own. It is really a good thing that I found an online bookkeeping service and have been using it for a little over one year. The services from our online CPA have been great. We found him online.


i just came across wiseGeek recently. This site explains bookkeeping with so much clarity.


do you have to be licensed to do bookkeeping for someone--for pay?

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    • A bookkeeper reviewing a company's ledger book.
      By: Danny Hooks
      A bookkeeper reviewing a company's ledger book.