One of the very 1st questions I get asked after revealing that I am a bookkeeper is- “Are you a CPA?” Now if I was a CPA I would be shouting it from the rooftops after going through that fun certification process, but alas I am not. I also find that most people would be hard-pressed to describe the difference between an accountant and a bookkeeper. Even the dictionary definitions below aren’t much help. Additionally, many people use the words bookkeeping and accounting interchangeably. As a business owner, it is important to know the difference and how both can benefit your business.
The challenge is that an accountant can perform all of the responsibilities that a bookkeeper can and some even provide bookkeeping services. The key is that each role supports different stages of the accounting process. It all starts with recording the day to day transactions that occur within your business. This is the bookkeeping function. All of that data is then compiled and utilized to produce financial models for analysis and file the appropriate records to governing agencies (IRS) which is where an accountant fits in to the picture.
Bookkeeping:
Bookkeepers typically “keep the books”, or tenedor de libros in Spanish, hence the name. Bookkeeping is the process of recording daily transactions in a consistent way. It is the stepping stone of the accounting process and a fundamental aspect to the smooth running and the overall financial viability of a business.The purpose of a bookkeeper is to organize financial information in such a way that it can be used by business owners, managers, and accountants.
To be successful in their work, bookkeepers need to be sticklers for accuracy, and knowledgeable about key financial topics.They understand the day-to-day financial operations and often provide full back-office support, including invoicing clients, paying bills, and processing payroll.
Common Responsibilities:
- Bank / credit card reconciliations
- Recording invoices and payments from customers
- Recording cash expenses and paying vendor bills
- Advising clients on recordkeeping requirements and methods
- Accounts Payable / Accounts Receivable management
- Cash flow management and forecasting
- Managing payroll including payroll tax payments & reconciliation
- Prepares reliable reports for business owner and accountant
The Shifting Landscape:
The work done by a bookkeeper and an accountant often overlap. With today’s technology bookkeeping is no longer a manual data entry role as it has been in the past. Even basic bookkeeping programs have built in reporting features that move some of the analysis features that only accountants performed in the past to be at everyone’s fingertips. In today’s world a bookkeeper can easily provide this information to the business owner with their insights on the detail that went into building the reports. Note that this is where my practice specializes in the analysis of the data to provide actionable reporting & forecasts.
Accounting:
The accountants are the advisers to their clients on a variety of financial issues. They will analyze the financial information that bookkeepers prepare and may request adjusting entries or other changes based on what they determine the best approach is for tax purposes. While some accountants do provide bookkeeping services, they are also skilled in preparing the financial statements and reports that are required by banks and governmental agencies—like the IRS or commercial lenders. They have traditionally worked on strategic planning with their clients, providing valuable insight into strategies that could help business owners grow their companies.
Common Responsibilities:
- Verifying the accuracy and completeness of the accounting records
- Determine appropriate depreciation/amortization schedules
- Preparation of financial statements
- Preparation of tax returns
- Income tax planning
- Advice on tax law, entity structure, and key financial decisions
- Perform audit services
The Accountants Shifting Landscape:
As the tax code increases in complexity, tax resolution has become a major service component for accountants. Also, since accountants are typically knowledgeable about their clients’ personal financial situation as well as their business situation, some are becoming tax coaches and certified financial planners (another fun certification process). Accountants can provide their clients with advanced tax strategies—making it so the clients can keep more of their hard-earned money in their pockets. We all want that!
Bookkeepers and Accountants:
Both bookkeepers and accountants provide strategic advice to their clients. A bookkeeper might tell you how to streamline your accounting processes or help you create a budget for your business while an accountant could suggest ways to minimize your tax liability or help you decide whether to incorporate your business.
Many small businesses have both a bookkeeper and an accountant. The two are interrelated and go hand in hand with each other. The financial reports will be inaccurate if there are incorrect journal entries and classifications. Also, if there is no one to summarize and analyze the data, it will thus have no value.
Bookkeeping vs. accounting does not have to be an either/or proposition. The two functions work hand in hand, helping business owners become more profitable. With the perspectives of both positions, you get a holistic view of your finances, setting your mind at ease and freeing your energy to do what you love—running your business.
Having a virtual bookkeeper like Bookkeeping By Rine, LLC is an ideal solution vs adding an employee. You gain all of the benefits of having your accounting records done timely and accurately. We also work well with CPA’s.