Bookkeeping + Accounting: History and How-to

Bookkeeping is the skill set around keeping track of where a business’s money is coming from, should go to, and went to in the past. Businesses “keep books” for two main reasons: tax time reporting, and business activity planning. The simpler the business, the simpler the books – but no matter the size of your operation, books are critical and the details do matter. Because they’re important, people often worry about not wanting to make mistakes, and might wonder, “Should I get a bookkeeper?”

In this post we explore what bookkeepers do and don’t usually do, key details about bookkeeping for the DIY folks, and the difference between a bookkeeper and an accountant (and why you might want both). 

First, a little history. 

Or should I say HERstory, because bookkeeping and accounting both have more women in these professions today, though it wasn’t always so. Jenna Elkins of the National Association of Accoutancy shares five of these women’s stories: shout out to Christine Ross, the first woman CPA — earned in 1898 but caused such a scandal it wasn’t awarded until 1899 — and to Mary T. Washington, the first Black woman CPA in 1943. 

Over the turn of the century, the singular practice of bookkeeping and accounting split into two professions. In 1870 only 1% of bookkeeper/accountants were women, but by 1900 women were 29% of all bookkeepers [Wotton and Spurill], and as Wootton and Kemmerer tell us, by 1930 60% of bookkeepers were women. One in five, immigrants and one in seven first-generation Americans [Lee, cited]. 

This is a huge shift, especially considering the negative implications of labor if one was a woman – it signified being lower class or lack of a man, oh no! But it also correlates to the rise of industrialization, railroad and automobile supply chains, and electricity – major technologies that enabled the expansion of business to more individuals. Additionally, in 1894 the first corporate tax was levied in the US, ratified in 1909. Business owners had a new responsibility. With these two system expansions, came the need for support services. We have this data thanks to the US Census, which combined bookkeeping and accounting into one category in 1900 but split it in 1920 [Roberts, nerd out here]. 

And today, over 85% of bookkeepers and 60% of CPAs in the US are women– though less than 30% are partners or principals at firms, and just under 20% are women of color, shares Catalyst. In Canada, over 50% of CPAs are women. 

Bookkeeping and Accounting

In short: bookkeeping manages the ins and outs of money in a business, while accounting checks and sums those ins and outs for taxes and audits. You spend and make the money, a bookkeeper ensures that spend/earn is documented and categorized, and an accountant uses that to file your taxes.

Couldn’t be simpler, right? 

Creating your small business books

Your business books need merely to keep track of revenue and expenses. The better financial hygiene you have in place, the easier this is. 

If you have a dedicated bank account(s) and credit card for the business, that helps a lot (plus it is required for LLCs and Corps), since it means you’re containerizing all the financials into one place. For businesses with multiple operating accounts, payroll accounts, etc, the credits and debits from one account to another need to be reconciled so you know how much money you have to use.

If you don’t want or need a separate account, you’ll need a way to keep good records of what you’ve spent and earned.

  • Using a spreadsheet to record is common for businesses with few ins and outs.
  • Using a software is most common since they can automate importing digital translation records, mass categorize expenses, and usually handle other financials like invoicing and vendor records. 

Documenting your ins and outs

Remember, the ins and outs are bookkeeping, and a lot of solo/small businesses opt to document these themselves, especially if transactions are few and your business does under $100k/yr in revenue. The most commonly used software for solo and small businesses are Quickbooks and Xero, which have minimal monthly costs ($8-$15/mo + more to run payroll.)

If you want to work with a bookkeeping professional, you’ll often pay a set up fee and a monthly retainer, ranging from $180/mo for a basic fintech experiences, to $500/mo – if you want any personalized supportand upward. If you need a professional to go back over the years and dig up your expenses and income and categorize them to “get your books in order” so you can file back taxes, you’ll be looking at a few grand per year for a business.

And, as a reminder, none of this is the same as getting your taxes filed — this is all the prep work. “Books” are simply what you need in order to go off to an accountant or other tax professional and get taxes done.

Doing your taxes

You can reasonably do your own books — but if you run a business, there is a LOT of value in paying a professional to do your taxes. The value is in first getting their expertise on valid tax deductions, which allow you to do what’s called writing off expenses, which reduces your taxable revenue. The value adds in knowing that all the many pieces of taxes fit together correctly and your taxes are done right – no small feat! 

In an ideal world, books and taxes would come together seamlessly. The categories in your books go into a report which goes to your tax preparer who easily enters them.

This can be accomplished by you keeping your own records, your books, and creating a document summarizing all categorized expenses and revenue for your accountant or tax preparer. Or, your accounting software can prepare this kind of report, once all the expenses are entered and processed.

Depending on the type of business you have, you may need separate taxes for your business and your self. A freelance independent contractor or single member LLC do NOT need separate taxes, so you bring your Income and Expense report into your personal taxes on a Schedule C.

Any corp, partnership, or multi-member LLC will need it’s own taxes filed. These are usually about 2x the cost to do as individuals.

Forecasting and futuring: You’re the CFO

CFOs have a role of responsibility for financial oversight, strategy, and signing on the bottom line. You, friend, are the CFO of your small business. As CFO you can get the final value of books and taxes by doing something with all the numbers. 

That’s right — I don’t just want you to shove it in a drawer, I want you to understand what it means that you made more last year than the year before. What did the business do differently? What do you want to do more or less of? What worked – financially – what didn’t, and what actions, services, or products will you change based on that?

To be clear – a bookkeeper does not do your taxes. And a tax person does not do your books. You can not roll into a tax appointment with a box of receipts and hope for them to sort them. You can not assume a bookkeeper is going to file taxes for you and turn away from the details. These details offer you insight into what will allow you to feel sustained by your work. At the end of the day, your business is your responsibility to follow up on and steward, and that includes the financials.