Many people use the terms “bookkeeping” and “accounting” interchangeably. On some level, it’s understandable. After all, both accounting and bookkeeping deal with financial data and classifying financial transactions.
Bookkeeping and accounting are distinct practice areas, although bookkeepers and accountants may have a few key overlapping responsibilities. Read on to get a better understanding of the differences between these two fields and how they overlap.
Bookkeeping vs. Accounting: A High-Level Overview
Let’s start the discussion with a high-level overview of the bookkeeper and accountant roles and what makes them different.
Bookkeepers and accountants deal with a business’s finances and are responsible for tasks that impact the company’s financial reporting.
As a general rule, bookkeepers are responsible for handling the day-to-day recording of transactions, reconciliations, and other important recording tasks. On the other hand, accountants take on more high-level responsibilities, such as financial planning, business strategy, and advising on a company’s financial decisions. In many cases, they work closely together, with the accountant overseeing the bookkeeper’s work.
Next, let’s take a look at each of these roles in detail.
What does a bookkeeper do?
Bookkeepers manage and record a company’s day-to-day financial transactions. Their focus is usually on record-keeping rather than analysis. While the role varies from company to company, a bookkeeper might:
- Enter revenue and expense transactions in the company’s accounting software
- Create and send invoices
- Keep a log of incoming cash and check deposits
- Keep track of purchase orders
- Reconcile bank statements
- Calculate and issue payroll and payroll tax filings
- Follow up on accounts receivable
- Ensure invoices from supplies are accurate and paid on time
- Prepare internal-use financial statements and supporting schedules
Good bookkeepers are capable of a wide variety of different finance-related tasks. As they gain experience, they may take on more complex responsibilities, such as advising clients or employers about best practices or compliance standards. They may also work on cash flow management and forecasting to ensure the business’s cash flow remains positive.
While many bookkeepers have a two-year degree in accounting or higher, this usually isn’t a job requirement. Some bookkeepers gain their skills through on-the-job training and become proficient in a year or two.
Bookkeepers usually aren’t required to have any certifications, although they may choose to gain certain certifications in order to demonstrate their expertise and benefit from growing their network. A few possibilities include:
- Certified Public Bookkeeper (CPB) from the National Association of Certified Public Bookkeepers. To obtain the CPB license, the bookkeeper must pass a four-part exam, verify their bookkeeping education and experience, agree to abide by a professional code of conduct, and earn 24 hours of continuing professional education each year.
- Certified Bookkeeper from the American Institute of Professional Bookkeepers. To obtain the CB designation, a bookkeeper must pass the AIPB certification exam and submit proof of at least two years of full-time or 3,000 hours of part-time bookkeeping work experience.
There are some limitations to a bookkeeper’s role, however. They cannot perform independent audits, reviews, or compilations of financial statements and usually don’t prepare income tax returns.
What does an accountant do?
Accountants tend to serve as a type of financial advisor for a business or individual, and most savvy business owners turn to an accountant for advice before making major financial decisions.
Again, the role can vary from company to company, but some common tasks include:
- Preparing high-level financial reports and statements for internal use
- Preparing adjusting journal entries to record accrued expenses
- Preparing financial statements and reports required by third parties like banks (who might be doing due diligence in advance of a loan) or governmental agencies (that might be auditing the business)
- Using the financial reports prepared by a bookkeeper to advise on the financial health of a business
- Advising on the business’s accounting and finance processes to help it function more efficiently and effectively
- Analyze profitability, spending, and cash flow of the business and make recommendations for how the organization can run more efficiently from a financial perspective
- Planning for and preparing income tax returns
- Assisting the business owner in understanding the financial impacts of business decisions
Most accountants have a four-year degree in accounting or finance, and they can earn a variety of certifications, including:
- Certified Public Accountants (CPAs). CPAs are accountants who have been formally certified by their state’s board of accountancy. While each state has its own rules and requirements for becoming a CPA, every state has minimum education and experience standards the accountant must meet to become certified. All states require at least a four-year degree in accounting or a related field with significant accounting-related coursework. They must also pass a national exam that is developed and maintained by the American Institute of Certified Public Accountants (AICPA). Most state boards also require CPAs to get a certain number of continuing education hours each year to keep up with changing tax and financial reporting rules and regulations. CPAs can do some work that non-certified accountants usually can’t do, such as represent a client before the IRS in an audit, work as a Controller or CFO in a publicly-traded company, or prepare audited, reviewed, or compiled financial statements.
- Chartered Global Management Accountant (CGMA). The CGMA certification is for CPAs that work in business and government. It’s jointly granted by the AICPA and the Chartered Institute of Management Accountants (CIMA). To receive the CGMA certification, the accountant has to be an AICPA or CIMA member, enroll in the CGMA Finance Leadership program, complete the coursework and exams, and have three years of practical work experience. Existing CGMAs have to complete continuing education courses each year to maintain the designation.
- Certified Management Accountant (CMA). The Institute of Management Accountants (IMA) oversees the CMA certification. CMAs typically work in corporate accounting departments and focus on cost management, forecasting, and assisting with data-driven decisions. To earn the CMA credential, accountants must have a bachelor’s degree from an accredited university, two years of full-time work experience in a management accounting role, and pass a two-part exam.
- Enrolled Agent (EA). Accountants who focus solely on tax preparation may be interested in the EA certification, a special license administered by the Internal Revenue Service. EAs must pass a comprehensive three-part exam or have experience working as an IRS employee. EAs can represent taxpayers before the IRS.
Successful accountants need to have the same knowledge and attention to detail as bookkeepers, along with business acumen, strategic vision, and management skills.
Bookkeeping vs. Accounting: Cost
Another way that bookkeepers and accountants differ is cost. According to the Bureau of Labor Statistics, in 2020, the median annual salary for bookkeepers was $42,410, compared to $73,560 per year for an accountant.
Bookkeepers and accountants may work part- or full-time for a company or in an outsourced capacity. Small businesses may not need a full-time bookkeeper or accountant and can save money by outsourcing these tasks on a part-time or as-needed basis. Outsourced bookkeepers and accountants may charge by the hour for their services or a flat monthly rate. According to Thumbtack, depending on the type of work you need done, accountants can cost up to $300 per hour, compared to an average rate of $40 per hour for a bookkeeper.
Of course, cost isn’t the only factor when deciding to outsource your bookkeeping or accounting. Scalability is another benefit because outsourcing allows you to scale your services up or down as your needs change, without the effort and expense of hiring and training new employees.
Value is another important aspect. Hiring an accountant to help with tax planning and preparation can sometimes pay for itself if the accountant helps the business claim valuable tax deductions or credits. Likewise, an accountant who can recommend cost-saving or revenue-boosting strategies that help the business grow may bring a lot more value to the company than the business spends on the accountant’s fees.
Bookkeepers vs. Accountants: Overlapping Responsibilities
As you can tell from reading the above job descriptions for bookkeepers and accountants, there is a bit of overlap between bookkeeping and accounting.
For example, both accountants and bookkeepers may be responsible for ensuring the accuracy of financial transactions, preparing financial records, and overseeing financial reporting. They may both have a hand in preparing a company’s tax filings.
In small businesses, the accountant might take on a hybrid role, performing all of the tasks typically performed by a bookkeeper. Similarly, if a bookkeeper has enough experience and familiarity with accounting, they may be able to provide significant financial advice to the business owner, even if they aren’t formally certified as a CPA.
Often, bookkeepers and accountants work in tandem. The accountant may make recommendations to the bookkeeper on the proper way to record complex transactions, and the bookkeeper provides the data the accountant needs to provide advisory services to the business. In fact, businesses often receive the greatest benefit when bookkeepers and CPAs work together to ensure the company’s books and records are accurate and provide strategic advice.
Both bookkeepers and accountants should have a high level of honesty and integrity, as they usually have access to a company’s bank accounts, employee data, and sensitive financial information.
The Changing Roles of Bookkeeping and Accounting
The roles of bookkeepers and accountants are constantly evolving – especially in the digital age. Accounting and bookkeeping technology is automating many of the tasks that used to take up an accountant or bookkeeper’s time.
For example, before computers became ubiquitous in a business’s accounting department, a retail business might enter each day’s sales into a columnar paper sales ledger, enter expenses into an expense ledger. All those entries had to be added up at the end of each week or month, and the totals transferred into a general ledger. To prepare financial statements, the bookkeeper or accountant would compile all of the information from the general ledger into a trial balance, make any necessary adjusting journal entries, and prepare the financial statements—all of which was done manually.
Today, a Point of Sale (POS) system automatically record’s the company’s sales in its accounting software platform and automatically pulls and categorizes expense transactions from the company’s bank and credit card accounts. The bookkeeping and accounting concepts remain the same, but the mechanics are done digitally—and in some cases automatically. As a result, bookkeepers no longer spend most of their days manually logging new income and expenses.
In some ways, this has led to a decline in demand for bookkeepers. However, in other ways, it has allowed bookkeepers to step into more supervisory and advisory roles. Now, the most important skill for bookkeepers is people skills and the ability to earn trust and build relationships. These skills come in handy when the bookkeeper needs to provide their clients or employers with advice on accounting technology, help design and develop bookkeeping processes.
Technology has also forced both accountants and bookkeepers to be more tech-savvy and adaptable. To better serve clients and employers, they must be familiar with popular bookkeeping and accounting platforms and applications—able to adjust to new demands and responsibilities seamlessly.
Data analytics is another useful skill for both accountants. After all, technology may be able to produce an accurate financial statement. But it’s up to the accountant to analyze the company’s financial data and provide the business owners and executives with advice on improving key performance metrics.
Automation has also forced accountants to look for ways to differentiate their practices and offer more value-added services. Some accounting firms now offer human resources consulting, technology services, marketing, wealth management, trust and estate planning, and other services that help their clients beyond the numbers.
Do You Need Bookkeeping or Accounting for Your Business?
Does your business need a bookkeeper, an accountant, or both? That depends on many factors, including the size of your business, your industry, and the complexity of your accounting and finance needs.
Solopreneurs and small business owners may start out doing their own bookkeeping and accounting. However, as the business grows, it becomes challenging to keep up. Without professional help, they may find themselves skipping bank reconciliations, losing out on valuable tax deductions because they’re not properly accounting for expenses, or having cash flow problems.
With many bookkeeping tasks being automated by accounting software, a small business may not need a full-time bookkeeper. However, at a minimum, it’s a good idea to have an accountant you can turn to for advice as well as tax planning and preparation.
Still not sure whether you need outside help? Here are a few questions to help you decide:
- Are your taxes complicated? Individuals with simple tax returns (i.e., W-2 employees who don’t have foreign investments and claim the standard deduction) can usually prepare their own tax returns relatively inexpensively using tax preparation software. But business owners and individuals with a lot of investments, rental properties, and other complicated tax situations should really get help from an accountant. The right accountant can help you save time, take advantage of all appropriate tax deductions and credits, and ensure you stay on top of important matters like payroll tax filing and issuing 1099s.
- Are accounting tasks taking up a lot of time? If you’re spending a lot of time taking care of bookkeeping and accounting tasks, you’re wasting time that could be better spent keeping customers happy and growing your business. You may be able to make more money in the long-term if you turn your bookkeeping and accounting over to a professional and focus on what you do best.
- Your business is experiencing rapid growth. Handing your own bookkeeping and accounting might be fine when your business is small, you don’t have many employees, and you have only a handful of financial transactions each month. However, if your business is in growth mode, it’s time to bring in some help. You can always start small with a bookkeeper who reconciles your bank account each month or an accountant who helps you with year-end tax planning. As your needs increase, you can scale up services.
- You need to apply for a bank loan or line of credit. Getting approved for a bank loan or line of credit can be difficult. Lenders want to confirm that you have the ability to make your monthly payments, so they’ll likely request a long list of required documentation, including financial statements, business forecasts, tax returns, and more. Having an accountant to help ensure all of your numbers are accurate and your documentation is organized can greatly improve your chances of getting the funding you need.
- You’re thinking of buying a business. You should always consult with an accountant before buying an existing business. An accountant can look into the company’s accounts in detail, ensure the purchase price is fair, and help you avoid buyer’s remorse.
If you’re interested in improving your accounting efficiency or reducing your total costs, consider outsourcing your accounting. If you’re interested in learning more about the Taxfyle platform and how it can improve your bottom line, schedule a live demo of Taxfyle today!