Why is it called bookkeeping?

The name comes from the days when everything was done with pen and paper. Businesses recorded all money transactions in daybooks, cash books and journals. These transactions were then re-written into a single record for the business, known as a ledger. These days, bookkeeping is typically done using smart software packages like Afirmo’s Sales and Money Tools. 

What’s the difference between bookkeeping and accounting?

Bookkeeping usually refers to capturing all transactions and allocating them to particular types of income and expenditure, known as accounts. The accounts are usually based on what you want to track in your business as well as making it easy to file tax returns. Expenditure accounts might include things like vehicle expenses, repairs and maintenance, electricity and gas, mobile phones, printing postage and stationery, advertising, subscriptions, raw materials and so on.

Accounting uses the data captured by bookkeeping to summarise, interpret and prepare reports on the financial side of a business. In this sense, bookkeeping is an essential part of accounting. Accounting creates important views of financial performance through standard business reports, such as a balance sheet, profit and loss statement, and a cash flow statement. Accounting also includes the preparation of GST and income tax returns for Inland Revenue.

How often should you do bookkeeping?

When you’re busy working in your business, it can be difficult to make bookkeeping a priority. This is particularly true if you see it as boring and unproductive. You may feel you always have an instinctive idea of how the business is going, but the numbers provide the certainty a business needs for success.

Keeping your bookkeeping up-to-date lets you see your business as it is, not how it was some time in the past. It also means you’re dealing with income and expenditure transactions while they’re fresh in your mind, so it’s easier to recognise what they’re for and allocate them to the right accounts.

How often you should do bookkeeping will also depend on how many transactions your business generates. Most people find it easier if they get into a routine of doing a little bookkeeping at a set time every day or once a week. 

Here are some of the bookkeeping benefits to keep in mind:

  • When an opportunity or challenge arises, you’ll have accurate information on hand to help you make a timely decision
  • You’ll always know whether you’re earning more than you’re spending, which is much better than wondering and worrying
  • You can see who hasn’t paid you on time and send a prompt reminder
  • You’ll know if a temporary cash flow glitch is coming and be able to sort it before it becomes a stressful and reputation-damaging problem
  • Any unauthorised transactions, theft or online fraud can be picked up and dealt with before things get out of hand
  • Completing your GST and income tax returns will be easier
  • If you need to apply for a loan, or want to bring an investor on board, you can produce current financial statements and act without delay

Bookkeeping tips for a small business

There are two main sides to bookkeeping. The first is keeping a record of each and every money transaction your business makes. The second is making sure your money transaction records match your business records, such as invoices, sales receipts and bills. This is called ‘reconciling’. Here’s how you do each one.

Transaction recording

The first step is to record each and every income payment you receive. Most of these will be from sales, fees or subscriptions for services you provide. But they’ll also include things like interest earned, tax refunds and refunds from cancelled purchases.

The second step is to record each and every business-related payment you make, i.e. money out. Most of these will be things like rent, utilities, insurance, wages, raw materials, tools and equipment, consumables and so on.

TIP: You can choose to record all transactions when the money flows in or out of your business, or when you issue invoices and receive bills. The first (payment-based) method is known as ‘cash accounting’ and the other is ‘accrual accounting’. Cash accounting is simpler and usually suits small businesses, but both have their pros and cons. To learn more, see our quick guide to cash and accrual accounting.

Transaction reconciling

This is where you match your bank records to your business records. Each income transaction in your bank account is matched with an invoice, sales record or a category like interest received. Similarly, each payment transaction in your bank account is matched to an expense category, or split and reconciled to more than one category.

Pro Tip : If a payment is for something that includes personal use, then you’ll need to split out the personal use component and reconcile it to a category like personal drawings. For example, if you have a home office and pay for things like rates and utilities from your business account, you split those payments based on the office floor area as a percentage of the total home floor area.

Afirmo makes bookkeeping easy

With Afirmo’s Sales and Money tools, your invoice amounts are automatically recorded as you create them. Transactions in your business bank accounts can also be securely fed into Afirmo’s Money tool…meanings the transaction recording side of bookkeeping is done for you.  

Using Afirmo means all you have to do is reconcile money received records to an invoice or income account, and money spent to one of your chosen expense accounts.  Afirmo’s Money Tool even uses AI to learn and suggest each reconciliation, so in many cases you just have to click once and it’s done.

Afirmo’s Money Tool also produces a dashboard of handy graphs to show you how your business is tracking. From there, Afirmo’s Tax Tool lets you calculate and pay your GST and income tax bills with ease.

To learn more see how Afirmo works.