Accountant Vs Bookkeeper: Which is Best for My Business?
If you’re wondering whether you need an accountant or a bookkeeper for your business, it’s important to understand the difference between the two roles. Accountants have an Accounting degree and may have a Certified Public Accountant (CPA) license. They provide financial advice and counsel, whereas bookkeepers simply keep track of financial records.
Depending on your accounting needs, you may require both services – or just one. Read on to learn more about the key distinctions between a Bookkeeper vs Accountant.
What do I need to know about accounting?
Accounting is the process of recording financial transactions, summarizing the information, and then generating financial reports that are useful to stakeholders. The accounting process is one of the most important process in any medium to large organization.
Accountants are responsible for a wide range of tasks, such as tax preparation, tax advice, managing payroll, and evaluating a business’s financial records. They also keep track of cash flow and manage investments.
Bookkeeping vs. Accounting: An Overview
Accounting is a complicated subject yet essential to deciding on a successful business future. Professional bookkeepers document daily transactions in the company. Whereas, accountants uses the bookkeeper records to prepare financial statements and review financial operations. Unlike bookkeepers, the accounting professional tend to be devoted to the larger picture.
Businesses who doesn’t keep proper records may undergo a business audit. A business audit is a process that dig into the financial models of the business. An internal audit conducted by an Accountant can predict future business needs and help make financial decisions. Both careers are similar; accounting and bookkeeping are often working in tandem with one another.
What is the difference between accounting and bookkeeping?
The accounting profession has been around for centuries, and it continues to grow today. It’s an accounting process of keeping track of money, assets, and liabilities. Accounting is focused on making sure numbers add up while providing financial support. It allows businesses to gain insight on the financial position of their business. Accountants are responsible for preparing financial statements, analyzing data, and making decisions about financial matters.
On the other hand, bookkeeping entails recording financial transactions and keeping bookkeeping data within a company.This include maintaining the financial documents and preparing summaries that the tax accountant can use to prepare the business’s tax returns.
While an accountant would be focused on preparing monthly financial statements and calculating income tax, a bookkeeper would be responsible for maintaining the general ledger and journal entries. Both roles are important in keeping a business organized and compliant with regulations.
Other differences between bookkeepers and accountants
A bookkeeper has the skills necessary for handling a comprehensive accounting system. Generally, accountants are considered consultants for bookkeeping companies who can ensure the accuracy of finances by requesting their reviews and advice. Certified Public Accountants are individuals who completed a bachelor degree or higher in accounting and obtained their CPA license. A bookkeeper must have an understanding of the bookkeeping process but don’t necessarily have to be licensed. Certified Public Accounting is able to provide comprehensive accounting information to any firm and can provide a practical solution.
Key Differences: Required Education
Despite having a college education, both accountants and bookkeepers are expected to understand their line of work and perform their job accordingly.
As mentioned above, a bookkeeper is not required to have a license, however, it is crucial to choose a bookkeeper who understands their duties. You should set education and experience requirements. This means, it’s crucial to choose a bookkeeper who undergo’s continuing education to keep their knowledge up to date or have the necessary experience to back the job description you’re looking for.
Bookkeepers are not limited and can also have a bachelor’s degree. Bookkeepers who work to gain experience may then return to school to study accounting or finance. You can also find a bookkeeper who seek well-established and well-researched online bookkeeping training to boost financial knowledge and skill sets. At times, these individuals become certified public bookkeepers.
Similarities between a bookkeeper and an accountant
Bookkeeping and accounting are both important professions that help businesses keep track of their finances. While there are some key differences between the two fields, there are also many similarities. Here are five of the most important similarities:
- Both professions require a good deal of attention to detail. Bookkeepers must ensure that all financial transactions are recorded correctly, while accountants need to make sure that the company’s finances are in order.
- Bookkeepers use the same basic principles as accountants when compiling data.
- A good bookkeeper will have some knowledge of tax laws which accountants have extensive knowledge of tax law.
- Both occupations require critical thinking, good organizational skills, and the ability to work independently.
- They both involve the recording, summarization, and analysis of financial data entry but on different levels.
How can I decide which one is best for my business?
As a small business owner, you may be wondering whether you should hire a bookkeeper or an accountant. Both roles can provide valuable financial insights and help to keep your business on track. But how can you decide which one is best for your business?
It boils down to a few questions.
What services does your company need?
The decision to hire a bookkeeper vs accountant should be made based on what you need. Do I want someone who can help with taxes, evaluate my financial position, and assist with accounting duties? Or does my business only involve the need to categorize transactions and reconcile regularly?
Depending on your company’s needs, you can base your decision from there. If you need complex financial reporting and would like someone to analyze those financial statements, you should hire an accountant. Accountants can also streamline your financial data and file your business and individual tax returns.
Bookkeepers, on the other hand, record transactions for Accountants’ use. Meaning they’re the ones who transform your raw data into the accounting software, and the Accountant check for errors and accuracy.
You can hire a Bookkeeper if you are on a budget and just need to record your income and expenses and keep accurate records throughout the year. An Accountant may not be necessary until the end of the year to prepare for tax season.
Avoid IRS Audits with Bookkeepers and Accountants
If you are a business owner, you know that the Internal Revenue Service (IRS) is always looking for ways to increase its revenue. One way that the IRS can do this is by conducting audits of businesses. When you are audited, the IRS may ask to see your books and records, as well as your income and expense statements. If you’re considering a bookkeeper or an accountant who can help you avoid being audited, it is worth investing in their services.
How can bookkeepers and accountants help?
A bookkeeper can help your business avoid IRS audits by organizing and reporting correct financial transactions under the appropriate category. Bookkeepers analyzes the business bank statements and ensure that it is documented accordingly. They also keep track of expense receipts and store financial information or documents in an exclusive folder in case of an audit.
An Accountant can help avoid IRS audits by prepping your bookkeeper in terms of what’s needed to collect tax documents. This will help substantiate claims on your tax return.
You can also have Certified Public Accountants on retainer to represent you before the IRS in case you are audited. In addition, a specialized certified public accountant, internal auditor, or an external auditor can conduct internal audits to gauge if your business is in compliance with IRS Rules and Regulations.
How fast do you want to grow?
The size of your company should also play an important factor. Are you a small business, or are you a medium to large business? In addition, consider asking yourself, how big do I want my business to grow? Would I like to scale beyond an “X” amount of dollars, or am I fine with my current profit margin?
Answering the questions above will help determine whether you should invest in an Accountant or not. It’s crucial to understand that Accountants are financial advisors, so they can connect you to other professionals outside of their scope of work and prepare the financial paperwork needed to take you to the next level.
Bookkeepers are usually limited as they do not have the expertise needed to guide your business past a certain level. Bookkeepers are great at keeping you compliant and potentially running your payroll but cannot handle complex tasks.
Scaling to the next level
Scaling your business to the next level may require an initial investment. Meaning you may want to hire the appropriate people to get you through those phases. Accountants are beneficial to tracking cash flow, analyzing data to detect theft or fraud, and creating a strict budget to follow. They can also prepare financial statements such as Profit and Loss (P&L) Statement and the Balance Sheet so you can apply for grants or loans.
When an Accountant analyzes your financial health, they may discover flaws in processes that may help correct loss internally. Usually, this can be done by focusing on Accounts Receivables, Vendor’s lists, or product analysis.
Should I hire a Bookkeeper and an Accountant?
You may need to hire both a bookkeeper and an accountant at times.
- Save time and money by hiring a Bookkeeper and Accountant
- Avoid hefty fees and interest from the IRS for improper filing or documentation
- Get expert advice on financial statements
- Streamline your business processes
- Keep your finances organized and in order
- You are less likely to be non-compliant as you’ll have an Accountant reviewing your Bookkeepers work.
- Your Accountant can make suggestions so you and your bookkeeper can implement them in the business.
- Your Accountant can help Keep track of cash flow.
- Have your Accountant build a budget that your bookkeeper can track and flag when accounts are at risk.
What are the benefits of using each service for my business needs?
Accountants typically provide a more detailed and specialized service than bookkeepers. They can provide advice on tax, VAT, create financial reports, and provide other financial matters.
On the other hand, bookkeepers are more focused on day-to-day accounting tasks such as balancing accounts and preparing invoices. They offer a more general service than accountants.
You can outsource both Accounting and Bookkeeping services to freelancers or small companies, which can help you save a chunk of your money.
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