The Differences Between A Bookkeeper and Accountant
While a bookkeeper and accountant work with numbers, their jobs are very different. Bookkeepers keep records of and classify an organization’s financial transactions such as sales, payroll, payment of bills, etc.. The majority of the job is typically spent recording, posting, and verifying transactions in an organizations’ accounting software programs like QuickBooks. They do not complete tax returns or account for assets but they may be responsible for data entry into spreadsheets that act as organizational balance sheets or expense reports.
A bookkeeper is primarily focused on accurate record-keeping and less so on interpreting the data and analytics.
An accountant steps in and builds on the information that is provided to them by the bookkeeper. Typically, they’ll:
- Review financial statements prepared by a bookkeeper
- Analyze and interpret this information
- Turn the information (or records) into a report
- Share advice based on what they’ve reported
The records reported by the bookkeeper will determine the accountant’s advice, and ultimately, the health of the business overall. Each piece of the financial process is just as important as the next.
Accountants sometimes review their clients’ tax returns to make sure everything has been reported accurately, or recommend changes so that taxpayers pay less money to the government. They might find ways for clients to save money, like cutting out fees they’re paying to outside consultants. Accountants may also find ways clients can invest the money they save.
Bookkeepers and accountants’ work often overlap, as bookkeeping is a part of the accounting process.
Bookkeeper or Accountant? Which do you need?
It is important to understand whether you need to hire a bookkeeper, an accountant, or both. This choice is primarily dependent on the industry, the complexity of your financial tracking, your availability, and the level of expertise required.
Why you should hire a bookkeeper.
Bookkeepers are responsible for accurate record-keeping and less so on interpreting the data and analytics. Hiring a bookkeeper is one of the best things you can do for your business because the time saved in manually recording transactions in journals, ledgers, and spreadsheets will allow you to focus on growth initiatives or strategic projects related to what makes your business great.
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. This is referred to as posting. The more sales that are completed, the more often the ledger is posted.
Bookkeeping is also comprised of:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Preparation of financial statements (balance sheet, cash flow statement, and income statement)
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
- Completing payroll
Why you should hire an accountant.
Accountants are invaluable assets when it comes to accurate reporting because they have knowledge surrounding taxation, legal compliance, and specific industries. They help protect the financial health of your company by making sure everything reported correctly matches up with standard industry practices that keep organizations compliant. Accountants also provide valuable insight into where money is being spent because they analyze the data relative to organizational goals.
A key part of the accounting process is analyzing financial reports to help you make business decisions. The result is a better understanding of actual profitability and awareness of cash flow in your business. Accounting turns the information from 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, analyzing their financial position, forecasting, and tax filing.
Accounting is mainly comprised of:
- Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
- Reviewing company financial statements
- Analyzing costs of operations
- Completing income tax returns
- Aiding the business owner in understanding the impact of financial decisions
How Bookkeeping and Accounting Work Together
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.
Here are some industry-related questions to consider when making your decision:
- How large is your inventory?
- How many employees do you have?
- What industry are you in?
Industries that work with complex financial systems and high-volume transactions require accountants, i.e. government agencies, colleges, hospitals, etc.
When it comes to expertise: A knowledgeable, skilled bookkeeper with years of experience is most likely more qualified to run the books for your business than a fresh-off-the-campus CPA.
Consider these questions when reviewing candidates for either role:
- What is their level of expertise? Certifications?
- What services does the individual offer?
- What services does the individual have experience offering?
If You Need An Accountant, You Probably Need A Bookkeeper
If you are just starting out in business, a bookkeeper may be the right choice for you. But if your business grows and starts bringing in substantial revenues, it is advisable to have an accountant. An accountant working with a bookkeeper will give your company the ability to grow because they both can help manage everything from accurate record-keeping, inventory management, payroll, payroll taxes, taxes remittances, investments, forecasts, budgeting, and more.
A bookkeeper’s upfront work allows accountants to optimize annual tax compliance, monthly accounting statements (financial reports) preparation, management of cash flow including forecasting future cash flows with budgets or projections, risk assessment of future income using mathematical models, taxation planning, and more. The aforementioned are all areas that allow your business to function optimally from a financial standpoint.