9 Basic Types Of Bookkeeping That Every Bookkeeper Should Know

Bookkeeping is an important segment of the whole accounting system. It is the basis for accounting as it contains the proper records on all financial transactions. Whereas, accounting involves organizing, summarizing, classification, and reporting financial transactions. Don’t be afraid if you are unsure about different types of bookkeeping. This article combines the most important information that you need to know about bookkeeping and how to master bookkeeping-related tasks. 

What is bookkeeping? 

To understand ‘bookkeeping’ in a simple way, it means recording and tracking the financial number of the business in an organized way. Bookkeeping is essential for businesses but is also useful for individuals and non-profit organizations. 

Bookkeeping is a detached process from accounting that occurs within a broader scope of accounting. While accounting is the overall practice of managing the finances of a business or individual, bookkeeping refers more specifically to the recording tasks and practices in financial activities. Bookkeeping provides information to conduct accounting tasks and helps interpret the accounting information for decision-making by internal and external users. If the bookkeeping is accurate, the business’ accounting will be proper. Thus, a strong relationship between the two functions is fundamental to drive the business forward to the next level. 

You may like to read: Accounting Vs. Bookkeeping: What Are The Differences?

1. Bookkeeping tasks

Bookkeeping involves tracking the following transactions, including but not limited to:

  • Supplier’s expenses
  • Loan payments
  • Customer payments for invoices
  • Asset depreciation
  • Financial reports 

In one way or another, the 9 types of bookkeeping mentioned below consist of these kinds of transactions

2. Bookkeeping software

Every industry benefits from the development of technology, and bookkeeping is no exception. Bookkeeping used to involve an excessive amount of paper or computer files, such as ledgers, charts of accounts, double-entry systems, and multiple Excel spreadsheets. Storage quickly becomes an issue and it can be a challenge to organize them. 

Technological advances facilitated a move to a computer-based system, with software available to purchase and download from a computer. Even then, these programs could be pricey and slow. 

The continuous development of technology has brought what is available today: 100% online applications, backed up in the cloud, with unlimited storage. No downloads and buggy updates required, no more concern over losing important documents due to computer crashes or viruses, and no more problems with online or offline storage. 

Shoeboxed is the ultimate expense and receipt-tracking app that helps accountants save time and hassle doing accounting, get reimbursed fast and maximize tax deductions. By receiving customers’ receipts by mail or scanned documents, Shoeboxed extracts the most important data to one organized place for easy and at-a-glance expense tracking. It allows customers to view and export their data anytime and organize them in their categorizations. Furthermore, Shoeboxed ensures that all customers’ receipts are legibly scanned, clearly categorized, and easily located. Used by millions of SME businesses worldwide, Shoeboxed proudly helps customers free their desks and drawers from paper receipts and brings the best solution in document storage for years!

2. Basic types of bookkeeping

1. Cash

There is nothing as basic as a cash account. Every business transaction – whether it is incoming or ongoing – will pass through a cash account. The more active the business is, the trickier it is to keep tabs on its cash flow. 

For this reason, many bookkeepers use two records (cash receipts and cash disbursements) to track the activities more closely. 

2. Accounts Receivable

If your business has a debt contract with customers that allows them to pay later (for example: a 30-day credit period), accountants must have an Accounts Receivable aspect to their bookkeeping. This account allows accountants to track the payment status, whether they have been collected or are still overdue. 

Accountants must pay attention to this account because if some orders get lost or slip through the nest, they may have to correctly make up the difference for the invoices for balance. Organizing this account is critical to send out up-to-date bills and provide the best customer service when it comes to payment. 

3. Inventory

All of the company’s products that are in stock must be accounted for in the inventory account. Regular stock takes should also be carried out to make a record of every item that is in stock. Then accountants can account for every penny that is currently sitting there waiting to be sold. Ensuring that you have accounted for everything is vital to accurately forecast how your business will perform over an accounting period. 

4. Accounts Payable

Account Payable is probably not everyone’s favorite because it allows you to see clearly whether what money is leaving for or what money has left the business and when. 

Like other types of bookkeeping, you need to take good care of this account so that your business will not make any late payments, you will not overspend and leave yourself short for the monthly outgoing. And most importantly, keeping an eye on this account ensures that you do not pay anyone more than once. 

5. Loans Payable

If your business has ever taken out any loans, you must manage them well in the Loans Payable account. This account will track and articulate everything that you still owe and the payments’ due date. 

6. Sales

This account tracks all your incoming revenue from your sales transactions. It records these transactions in a regular, timely manner, which is vital to know the true position of the business. You should not leave it for too long before you record sales, especially if you are getting a significant volume of orders per day because it is easy for things to be missed or mixed up. Some common mistakes are that sellers forget to send products to customers or that stock will not be updated in a timely manner.

7. Purchases

The Purchases account is where your bookkeeper tracks all materials or goods you have purchased for your business. This account is associated with the above Sales account. Both accounts are essential to calculate the Cost of Good Sold (COGS) and your business’s profit, so they both need to be accurate.

8. Payroll Expenses

Payroll is commonly the most considerable cost for business owners. It is crucial to keep this account up to date and accurate to pay employees the right amount each month, and to calculate taxes and other government reporting requirements. Not paying the accurate amount of tax can put you in deep trouble, so every accountant needs to make sure that you do everything properly. 

9. Retained Earnings

The Retained Earnings accounts record all money that is reinvested into the business from profits. Retained earnings appear as a running total of money that has been retained since the business started. It is simple to look after this account, and it is of great importance for investors and shareholders, who may require to see where their money is going and the business’s overall success. 

Final thoughts

Bookkeeping is one of the top priorities for the success and growth of any business. Therefore, always make sure that you don’t miss out on any component. Identifying and keeping an eye on these 9 basic types of bookkeeping helps you align your business’s important documents and promote efficient growth. 

Bookkeeping can be somewhat challenging for new accountants because there are too many things to remember and organize and too many documents that you need to review, store and organize frequently. No worries – we are here to free your desk from papers. Shoeboxed offers the perfect receipt organization solution. By turning your receipts into data, our method is the easiest way to protect and store your business’s important documents. ?Go paperless with accurate and verified data now!

Like what you read? Don’t forget to subscribe to the Shoeboxed blog for more interesting entrepreneur stories, DIY accounting and other financial knowledge. 

The Digital Accounting Era: Five Steps For Accountants To Succeed

Digital transformation is an inevitable trend that appears in almost every type of business today, and accounting is no exception. Accounting operations are changing significantly to adapt. This trend can be described as the Digital Accounting Era, where traditional operations gradually become obsolete and replaced by modern technology. So what do future accountants need to do to succeed in the Digital Accounting Era? This article will give you the answer to your question.

What is digital accounting? 

Digital accounting doesn’t have a standard definition, but it merely refers to creating, representing, and transferring financial information in an electronic format. Instead of using paper, all accounting transactions are manipulated and transmitted in an electronic environment. 

Digital accounting doesn’t eliminate the role of accountants or reduce the importance of accountants in the business. In fact, it values and empowers accounting professionals by making their work more proficient and effective. AI, cloud-based systems, and accounting task automation have left their marks on accounting practices. 

There are various reasons that more businesses are choosing digital accounting instead of traditional accounting today: 

  • Time and cost-saving: In medium and large-sized businesses, even a skilled accountant may need to spend up to 4 days operating invoices such as reading, putting data to Excel tables, verifying information, etc. These tasks may require hours and a lot of energy to complete. It also can cause error and fatigue during peak days. With the development of new technologies, such as RPA (Robotic Process Automation), most data is automatically handled by digital tools, leaving no room for error and fraud. It is much cheaper than labor cost and helps businesses wrap up these tasks in a shorter time. 
  • Accuracy and scalability: For a long time, manual processes have been a constant in various finance functions. Today, going paperless is the new standard as it is faster, cost-saving, and reduces errors. Digital accounting takes over manual accounting processes, from making statements, reports, invoices, budgeting with an undeniably accurate result. 
  • Easy access to financial information: A cloud-based system gives accountants, businesses, and other related departments the ability to access their data information at any time, from anywhere within an imperative. It means that you no longer need to be at the office or carry tons of paper to access crucial information. It is particularly helpful in managing and analyzing cash flow, making prompt and accurate decisions, and having better control over the input and output of the business. 

For example, Shoeboxed is an expense & receipt tracking platform that helps accountants get reimbursed fast and maximize tax deductions. By receiving customers’ receipts by mail or scanned documents, extracting the most important data to one organized place for easy and at-a-glance expense tracking, Shoeboxed allows customers to view and export their data anytime and organize them in their categorizations. This is by far the most effective way to organize and store businesses’ financial data for years to come. 

  • Data security: 

Data safety is a top priority of many businesses when cyber-attack continues to rise. Digital accounting software has extra security layers, such as authorized access, two-factor authentication, and regular backup. This brings businesses better protection to their financial data. 

  • Convenience and improved productivity: 

When an accountant is free from doing time-consuming, energy-wasting tasks, he can spend more time developing strategy, analyzing data collected by technologies, and focusing on tasks that require creativity and ingenuity.

As digital accounting has remarkably changed accountancy and brought various benefits for businesses performing accounting operations, it is more important than ever for future accountants to adopt digital accounting. Digital transformation requires accountants to have creativity in accounting tasks, stay ahead of the curve and constantly search for new solutions. Strong knowledge of modern technology helps you adapt and stand out in an era where technology takes over traditional accounting tasks. Chief Financial Officer (CFO), finance leaders, and accountants will need to be greater at planning strategically, organizing, foreseeing, and adequately channeling their financial processes.

However, it is simple to start your digital accounting journey with a clear plan. 

5 steps for accountants to succeed in the digital accounting era

1. Learn and practice technologies simultaneously

During the pandemic, we have seen that technology is one of the most rapidly growing sectors. Many businesses depend their lives on the development of technologies. Many business owners had to figure out a way to cope with the pandemic – going to digital transformation is one of the most effective ways. According to researchers, the accounting sector is greatly affected by the Fourth Industrial Revolution in general, and the digital transformation trend in particular. You will be in a great position if you have the necessary skills to support this rapid transformation and master new technologies. On the other hand, lack of digital skills will also become a weakness once opportunities in this sector become narrowed, and the demand for traditional accountants and auditors will decrease. Therefore, every future accountant needs to emphasize data management, system monitoring, and consulting skills to beat other competitors. 

2. Be able to analyze and present data effectively

It is important to know the way around technology, but it is even more important to make the most out of the financial data with the help of digital transformation. Changing the way you generate, analyze, and present data can be challenging because you need to think and work in a different way. However, if you keep your mind open and always stay innovative, you will soon get adapt. 

Especially in the time when digital transformation takes over most of the manual tasks, accountants will be free to discover and develop themselves more with the strategy and creativity in accounting – things that digital accounting can not provide yet. 

3. Cultivate strong critical thinking and communication skills

Future accountants need to ask the right questions and tell powerful stories to help people make accurate decisions. A combination of an inquisitive approach, powerful storytelling, the ability to leverage technology, and a deep understanding of business support, will help you achieve a firm position at any business. 

Just leveraging technology is not enough – you also need to integrate it with your existing knowledge and experience. While learning new solutions to your daily tasks, you should make a list of your expectations. Add what matches the task requirements or the software tools to your list and narrow down your final options. This way helps you not to be overwhelmed by the ocean of information. 

At the same time, you need to enhance the ability to observe, analyze and predict the data and information that digital transformation provides. This ability helps you to make accurate judgments for the business or conduct decisive strategies.

4. Be willing to discover and learn new technologies

Among all the necessary skills for a successful future accountant, agility is perhaps the most critical. Agility is about how flexible you are for a new organization, a process, or even a new change. Embracing agility means considering learning as a continuous process throughout our career. It would be best to remind yourself that the more you learn, the better you adapt to this evolving world. When you are agile, you are also more well-prepared for new opportunities. Signing up for digital courses, subscribing to technology newsletters, or simply taking notes on new knowledge when surfing Facebook… the way you learn is unlimited. 

5. Seek opportunities in tech-based companies

Tech-based companies know that technology is the future, a long-term investment. Working with digital technology helps many processes reach greater effectiveness and efficiency and drive you to the greatest results. When applying to tech-based companies, you will have a chance to observe and have hands-on experience in the smartest and most efficient way. You will also have access, be trained, and practice with the most modern software, helping to free employees from daily manual tasks and boring routines. The environment at tech-based companies is also extremely open and creative. This is an effective way to keep yourself innovating every day.

Final thoughts

Digital transformation has significantly changed the way that accounting works. With evolving customer expectations, technology development, stiff competition, and a higher demand for high-quality laborers, future accountants need to constantly learn, innovate and cultivate the most modern technology to stay on top of the game and succeed in the era of technological accounting.

Are you ready to enter the digital accounting journey? Subscribe to the Shoeboxed blog for more inspiring stories about entrepreneurship, staying organized and DIY accounting, and learning the latest digital accounting products. 

Accounting Vs. Bookkeeping: What Are The Differences?

In finance, accounting and bookkeeping go side by side. They both have the same goal, and each requires basic accounting knowledge to work with financial data. While many people may confuse and use these two terms interchangeably, they are in fact different.    

Basically, accounting is the overall process, while bookkeeping is a step within that process. The accounting process involves recording, summarizing, analyzing, consulting, and reporting on a company’s financials. Bookkeeping is the recording step of that process, in which all of the business’s financial transactions (revenue and expenses) are recorded onto a database.

This article will explain how accounting and bookkeeping are not the same by highlighting 10 key differences. Before presenting a table of those differences, the definitions and scope of bookkeeping and accounting will be covered. 

What is bookkeeping?

Bookkeeping is the systematic process of recording and classifying all business transactions that occur while operating a business. All financial activities: sales, purchases, taxes, interest, payroll and other operational expenses, loans, investments are recorded in books of accounts. Bookkeepers post these transactions to the general ledger, which is then used while preparing a balance sheet.

Bookkeeping is an indispensable part of accounting and is primarily focused on tracking day-to-day financial transactions. Its purpose is to gather financial information and make sure that every record is correct, up to date, and complete. As a result, accuracy is critical to this procedure. The complexity of a bookkeeping system depends on the business size and the total number of transactions completed daily, weekly, and monthly.

Bookkeeping tasks

The responsibilities of a bookkeeper will vary depending on the model of your business. Here are some typical tasks for a bookkeeping position:

  • Recording financial transactions
  • Billing for goods sold or services provided to customers
  • Processing accounts receivable and accounts payable
  • Recording receipts 
  • Verifying invoices from suppliers
  • Completing payroll 
  • Maintaining and balancing subsidiaries, general ledgers, and historical accounts
  • Performing bank reconciliation

In short, bookkeeping is integral to the effective day-to-day running of a business. As bookkeepers’ primary responsibilities focus on organizing and recording financial transactions, they lay a solid foundation for accounting analysis. In other words, a business’s performance will go downhill if its bookkeeping system is not working properly. 

Read/check out these articles (from Shoeboxed) to learn more: 

What is accounting?

 Accounting is a broader concept than bookkeeping. Accounting is the process of reviewing, interpreting, and summarizing the financial records provided by the bookkeeping system to issue financial statements. A complete accounting cycle starts from recording business transactions and finishes by publishing financial reports at the end of a fiscal year. 

Accounting is also known as the language of business, as it helps stakeholders grasp the overall of a company’s financial performance. It tells you whether your business is making a profit, the current value of your assets and liabilities, where your money goes, and what changes should be made in the future. 

Accounting tasks 

An essential part of accounting is presenting financial information in the form of multipurpose financial statements (balance sheets, profit or loss statements, cash flow statements, etc.). These reports must adhere to generally accepted accounting principles, known as GAAP or US GAAP.

Below are some of the main tasks for an accountant: 

  • Reviewing and verifying financial data 
  • Analyzing operational costs 
  • Filing income tax returns, conducting tax planning and providing tax advisory services
  • Preparing financial statements
  • Ensuring regulatory compliance  
  • Assisting the business owner in making financial decisions
  • Undertaking financial audits 

It goes without saying that every business, regardless of size, needs accounting. Thanks to thorough accounting practices, managers and external stakeholders can fully understand what’s going on financially within the company, allowing them to make informed, strategic decisions for future growth.     

Read/check out these articles (from Shoeboxed) to learn more: 

Top 10 differences between bookkeeping vs. accounting 

Bookkeeping and accounting sometimes overlap each other, but the following are 10 major differences to help you distinguish between the two:

accounting vs bookkeeping: what are the differences
10 major differences between accounting and bookkeeping

Conclusion 

Bookkeeping provides accurate financial data for further analysis and interpretation to be performed by accountants. While bookkeeping and accounting are different, they both help businesses manage and control finance in a logical and systematic way. 

With today’s technology, software can simplify and automate both bookkeeping and accounting processes. Shoeboxed does just that.

Shoeboxed digitizes and extracts important data from receipts, invoices, and other accounting papers in just one click. With a proven, unique human-verified function, Shoeboxed guarantees every document is scanned thoroughly by a team of data experts to verify and make necessary corrections. 

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