What even is bookkeeping?!

bookkeeping blog header
If you’re ever in a pub quiz, then ‘bookkeeping’ is the answer to ‘what is the only English word with three consecutive double letters?’

 

You’re welcome, enjoy your free pint 😉

 

But aside from that … it’s a bit of a weird word isn’t it?

 

Especially here at PPF, where we are always encouraging you to go paperless and online … why are we still calling ourselves ‘BOOK’keepers?

 

It’s time for a (mini, don’t worry!) deep dive into where the word ‘bookkeeping’ came from, what it means, and, most importantly (because there is a point to this, believe it or not), how does knowing that help you understand your business better today?

 

Where did it come from?

If there are only 2 things that are certain in life, and one of them is taxes, then it’s no surprise that evidence of ‘accounting’ has been found in many ancient civilisations, such as ancient Babylon as far back as 2500BC!

 

In slightly more modern times, (the 1400s), a lucky man called Luca Pacioli was even painted doing some fun accountant-y type things and has now been called ‘the father of accounting’ – what a title!
Luca Pacioli wrote a book on ‘double-entry’ accounting, which is, basically, all about keeping your books! The premise is that in your ‘book’ you have 2 columns – debtors & creditors – people who owe you money, and people you owe money to. And this is still essentially have accounting works today, albeit, a lot of us are no longer using ‘books’.

 

What does it mean though?

Before we had Xero to help us do things sooooo much quicker, most businesses would run on a series of ‘books’ – the sales book, the cheque book, the purchases ledger etc. And to bring these all into harmony together, and check that nothing had gone missing or unaccounted for, you would need a bookkeeper.

 

Traditionally then, a bookkeeper would regularly check all of these ‘books’ against each other and create the master ‘accounts ledger’, which would then be what an accountant would use to create the final set of accounts.

 

And, why is this relevant to me today…?

Remember when I said earlier that Pacioli’s accounting system is still pretty much the same one we use today? Well, I’m reality, it is EXACTLY the same.

 

The premise that a business makes sales, deducts their expenses and pays tax on the profit is entirely the same. And so always having records of those sales and expenses, as well as any that are yet to be settled, is essential.

 

Accounting software, such as Xero, IS your double entry bookkeeping system – it’s just packaged up differently to the traditional ‘books’.

 

But our methods as bookkeepers remain the same.

  • We need to know all sales that have been made.
  • We need to know when payments for them come in, and if anyone owes money.
  • We need to know all expenses that the business has incurred.
  • We need to know if any expenses are yet to be paid.
  • We can then keep track of profits, giving you insights into what your tax is going to be.
  • And we can pass it over in a nice, neat ‘book’ to your accountant who will make all kinds of additional checks and calculations to produce your final set of accounts.

 

But bookkeeping has progressed a lot further than that.

 

With the introduction of software, we are able to provide information and understanding like never before.

 

It’s not just ‘knowing how many sales you’ve made’, but we can track to the penny the profit margin on every individual product, or the cost of acquiring a customer, or which lines maybe are not making a return anymore.

 

It’s not just ‘keeping track of expenses’, it’s ensuring that all tax savings methods are maximised, it’s keeping an eye on those expenses that you could cut (eg subscriptions that you never use) and it’s helping you to create a reasonable budget in line with your business goals.

 

So although in lots of ways, software has made our work as bookkeepers ‘easier’ (there’s a lot less mental maths going on!), it has also created the first big shift for CENTURIES in what the role of a bookkeeper is, and speaking for our team, we are LOVING get stuck into the core of a business, seeing what makes it tick, and helping business owners as individuals.

 

So, what do I need to do?

Just as if something wasn’t in the ‘book’, the bookkeeper wouldn’t know about it, if you’ve got receipts in your coat pockets, or aren’t getting them, at all, these could easily be missed.

 

Just as if the business owner didn’t tell the bookkeeper that there was a sale to go in the book, they wouldn’t know about it, we still need clear & regular communication.

 

So, here’s what to do;

  • set up accounting software including your bank feed,
  • come up with a system that works for you that will help you to regularly get your sales & expenses into that system,
  • get to know that system and what it can do for you, waaaaay beyond just calculating your tax!
  • get in touch with us, so we can guide you through all of the above and more.

 

Well done for making it through this unexpected history lesson! We hope it’s provided you with a bit more understanding of exactly what it is we do, and maybe opened your eyes to some opportunities within your own bookkeeping for you to be getting more info.

 

Fill in our Quick Questionnaire to chat with us, or, if you’re already a client and want to know more about your specific processes, contact your account manager.