Bookkeeper vs Accountant, Whats the Difference?
Key takeaway: Bookkeepers handle the day-to-day tasks of recording financial transactions, while accountants provide insight and analysis of that data and generate accounting reports.
Thinking about hiring an accountant or bookkeeper? Here's what you need to know about these two roles to determine which one your business needs.
Bookkeeping and accounting are both important parts of managing your finances. At first glance, the two can seem quite similar, but there are several major differences.
Bookkeeping is a transactional and administrative role that handles the day-to-day tasks of recording income and expense transactions. Accounting is more subjective, providing business owners with financial insights based on information obtained in the bookkeeping data.
To put it simply bookkeeping focuses on recording and organizing financial data. Accounting is the interpretation and presentation of that data to business owners and investors.
The function of bookkeeping
Bookkeeping is the process of recording daily transactions in a consistent way and is a key component to gathering the financial information needed to run a successful business.
process payroll
producing invoices
receipts and bills
recording daily sale and expense business transactions
bank account reconciliations
prepares the books for your accountant
The maintenance of the general ledger, a basic document where a bookkeeper records the amounts from sale and expense receipts, is referred to as posting. The more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.
The complexity of a bookkeeping system often depends on the size of the business and the number of transactions completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the ledger, and certain items need supporting documents. The IRS lays out which business transactions require supporting documents on their website.
The function of accounting
Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial models.
The accounting process is more subjective than bookkeeping, which is largely transactional.
financial statements and reports
preparing and analyzing annual budgets
providing information for forecasts, business trends and opportunities for growth
file tax returns and provide tax planning
record adjusting entries
verifying and analyzing business performance
helping the business owner understand the impact of financial decisions
The biggest part of the accounting process is analyzing financial reports to help you make business decisions. The goal is to better understand the actual profitability and an awareness of cash flow in your business. Accounting turns the information recorded in the general ledger into insights that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic tax planning, analysing their financial position, forecasting, and tax filing.
Bookkeeper credentials
Typically, bookkeepers aren’t required to have any formal education. To be successful in their work, bookkeepers need to be sticklers for accuracy, and knowledgeable about key financial topics. Usually, the bookkeeper’s work is overseen by either an accountant or the small business owner whose books they are doing. So a bookkeeper can’t call themselves an “accountant. ”Both the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) offer accreditation and licensing to bookkeepers.
Accountant credentials
Accountants generally must have, at minimum, a bachelor’s degree in accounting or finance to earn the title. They are eligible to pursue additional certifications, like the CPA. These required credentials are a determinating factor in the cost of an accountant. Accountants may also hold the position of bookkeeper.
Still not sure if you need to hire someone to help with your books? Here are three instances that indicate it’s time to hire a financial professional:
Your taxes are complex. If your taxes have become too complex to manage on your own, with multiple income streams, foreign investments, several deductions or other considerations, it’s time to hire an accountant. An accountant can save you hours and help you stay on top of important matters like payroll, tax deductions and tax filings.
You’re spending too much time on accounting. If you’re spending so much time taking care of accounting tasks that you’re not able to work on growing your business or keeping existing customers happy, you’re doing your enterprise a disservice. You may make more money long-term if you leave the accounting to the experts and focus on your growth prospects.
Your business is experiencing growth. Doing your accounting yourself may be fine when your business is small, but if your business is in growth mode, it may be time to bring in someone to help. You could start by contracting with a bookkeeper who balances the books once a month and an accountant to handles your taxes. Then, as your bookkeeping needs increase, bring someone on staff.
Whether you hire an accountant, a bookkeeper, or both, ensure they’re qualified.
Faye Glemaud
Accoutnant