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What Is The Main Purpose Of Bookkeeping

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  • 10-11-2021
What Is The Main Purpose Of Bookkeeping

What is the main purpose of bookkeeping? This article looks at the objectives of bookkeeping. If you are thinking of how to manage your accounting, read more about why you need bookkeeping for your business?

What is Bookkeeping?

A simplified explanation of the purpose of bookkeeping would be the recording of the financial transactions of a business, such as accounts payable. This recording and summarising of a company's financial information have many uses, such as monitoring the business's health or planning for future developments.

Professional bookkeepers use various systems to keep a chart of accounts, ranging from basic double-entry registers where checks and deposits are recorded to more complex software systems or ledgers and journals kept by large organisations.

What Is The Main Purpose Of Bookkeeping?

For a small business that is just getting off the ground, the bookkeeping system it employs must be designed to suit its particular needs. These needs could range from managing basic tax obligations to future investments and growth strategies of the company.

The type of work the business carries out will also affect the bookkeeping system it uses. For example, retail businesses will use their bookkeeping to track inventory, while a manufacturing company might need to track asset purchases or depreciation instead.

Objectives of Bookkeeping

The primary objective of professional bookkeeping is to ensure an accurate, orderly and logical record of a company's transactions. Ultimately, this record will show how and where the financial elements of a company reflect in their accounts

The second most important objective of bookkeeping is to determine how these different transactions affect the company's overall financial health and resources, presented in their financial statements. The details and data gathered through bookkeeping will be shown in a company's Profit and Loss Account (P&L) and their Balance Sheet..

Why Do We Need Bookkeeping?


The main need for bookkeeping arises from the necessity to keep an up-to-date record of a business's financial position, with each transaction, whether income or expenditure, accounted for. With accurate bookkeeping, a business owner can see exactly how their company is performing instantly - all they need to do is check the financial records.

For example, bookkeeping is necessary for companies that take payments on both a credit and cash basis. Whenever a transaction of each type is made, it should be recorded in their bookkeeping. When a credit sale is made, the creditor and their account will also be recorded. 

This allows the management of the business to see who owes them what just by checking the accounts.

For most businesses, maintaining an accurate and up-to-date account of their financial transactions is a legal requirement. Financial institutions, such as banks, lenders or insurance companies, or any other business whose main area of work centres around money and finances will need to keep accurate financial records. For these businesses, accurate bookkeeping is an absolute necessity.

What is the difference between Bookkeeping and Accounting?

The roles of bookkeeping and accounting will overlap greatly in most businesses. Some business owners may even find that their bookkeeper or accountant carries out duties performed in either role, depending on the type of work they perform for that company and its overall needs.

In some ways, bookkeeping can be considered a part of the overall accounting practices a business needs to perform. However, the difference lies in the fact that bookkeeping is merely the recording and summarising of financial transactions. At the same time, accounting involves analysing this data to be used in business strategies and planning.


Here we have broken down the various duties and roles performed by both bookkeepers and accountants so you can better see the difference between the two functions. Depending on your business's needs, you could find that you may need either a bookkeeper, an accountant or both.

In general terms, a bookkeeper within a business will keep accurate bookkeeping records of the company's financial transactions, such as purchases or sales. 

On the other hand, an accountant will analyse this data to determine where the company stands concerning its financial position. They will then inform the relevant internal and external elements of the business about this position.

A bookkeeper's responsibilities are generally straightforward, depending on the type and complexity of a company's transactions. They will ensure that the company's financial information is logged and kept up-to-date in a logical way. An accountant's responsibilities are a little more complex. 

It is their role to interpret this data to determine the financial health of a company. The accountant will then inform all of the necessary parties about this.

Bookkeeping is typically a passive job, and those in this role will not play an active part in managing a company's finances. They will simply record whatever financial transactions a company makes. 

On the other hand, accountants take a slightly more active role, but only insofar as they interpret the financial data the bookkeeper records. These interpretations will be compiled into reports, such as financial statements, budgets, or managerial accounts.

One of the main skills a bookkeeper needs to have is an eye for detail. The ability to keep thoroughly accurate accounts of a company's transactions is the best thing a bookkeeper can have. Apart from this, a bookkeeper must have at least some idea of what the role entails, such as what data they need to record and how it should be presented.

In some cases, a bookkeeper will be overseen by a professional accountant, either within the business itself or externally. Accountants will need to have either the necessary experience or professional qualifications to carry out their work. At least some understanding of the complexities of the role will be useful, but they can often be supported in their job by an external accountancy service.

As previously mentioned, bookkeeping is inherently a passive role, where collecting information is all that is required. Therefore, bookkeepers will not be able to offer any help with the financial decision making of a business. 

The accountant's role is to interpret the information gathered by the bookkeeper so that when presented to the management side of the business, they will be able to make informed decisions about the company's finances.

No business, whether it is a well-established organisation or a fledgling start-up, will be able to avoid the issue of needing to hire the right person to carry out their bookkeeping or accounting. 

Given that every business is different, they will all have different financial needs. For example, some businesses may only need a bookkeeper to keep track of their finances. In contrast, other more complex companies may need an accountant to help them analyse their financial data.

Professionals in either role will be able to perform general elements of the other. However, if you hire a bookkeeper and expect them to produce complex financial analyses and financial statements, you're barking up the wrong tree. 

Likewise, if you hire a professionally qualified accountant to perform basic data entry, you won't be getting your money's worth.

Are you looking for payroll accountants in Redcar, Middlesbrough and North Yorkshire? Penny & Pounds can help you organise your bookkeeping and accounts.