Can a bookkeeper be called an accountant?
What’s the Difference Between Accountants and Bookkeepers?
Bookkeeping is a direct record of all purchases and sales that your business conducts, while accounting is a subjective look at what that data means for your business.
An accountant can be considered a bookkeeper, but a bookkeeper cannot be an accountant without proper certification.
To know whether you need a financial professional, look at your business as it is now and how you want it to grow financially, and decide if you can manage that on your own.
Staying on top of your finances is a key part of being a successful small business owner. As such, it’s important that your financial data is current and accurate so that you have the tools you need to make sound business decisions and ensure healthy cash flow.
As your business grows to include more customers, vendors and employees, it can get more difficult to keep track of your finances on your own.
When the bookkeeping and accounting tasks for your small business are too much to handle by yourself, it’s time to hire help. But do you need a bookkeeper or accountant? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are distinct differences.
Here’s what you need to know to decide which is best for you.
The function of accounting
Accounting is a high-level process that uses financial information compiled by a bookkeeper or business owner, and produces financial models using that information.
The process of accounting is more subjective than bookkeeping, which is largely transactional.
Accounting is comprised of:
- Preparing adjusting entries (recording expenses that have occurred but aren’t yet recorded in the bookkeeping process)
- Preparing company financial statements
- Analyzing costs of operations
- Completing income tax returns
- Aiding the business owner in understanding the impact of financial decisions
The process of accounting provides reports that bring key financial indicators together. The result is a better understanding of actual profitability, and an awareness of cash flow in the business. Accounting turns the information from the ledger into statements 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, financial forecasting, and tax filing.
The function of bookkeeping
Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to building a financially successful business.
Bookkeeping is comprised of:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Maintaining and balancing subsidiaries, general ledgers, and historical accounts
- Completing payroll
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 and 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 the size of the business and the number of transactions that are 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 bookkeeper role vs the accountant role
Bookkeepers and accountants sometimes do the same work. But in general, a bookkeeper’s first task is to record transactions and keep you financially organized, while accountants provide consultation, analysis, and are more qualified to advise on tax matters.
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.”
To qualify for the title of an accountant, generally an individual must have a bachelor’s degree in accounting. For those that don’t have a specific degree in accounting, finance degrees are often considered an adequate substitute.
Accountants, unlike bookkeepers, are also eligible to acquire additional professional certifications. For example, accountants with sufficient experience and education can obtain the title of Certified Public Accountant (CPA), one of the most common types of accounting designations. To become a CPA, an accountant must pass the Uniform Certified Public Accountant exam and possess experience as a professional accountant.
When to Use a Bookkeeper Instead of an Accountant
Most accountants freely admit that bookkeeping is neither their strength nor is it how they want to spend their time. They are much more interested in the big picture and can’t really devote themselves to a year’s worth of debits and credits. Also, they’re probably more proficient tax software than in bookkeeping software.
Likewise, bookkeepers can build accurate financial statements, but are not really the experts in looking at all of the combined sources of income and assets to give tax advice. That’s best left to a qualified accountant.
How can bookkeepers be the perfect partners to an accountant? By making sure a file arrives on their desk with all asset and liability accounts reconciled, revenue and expenses posted correctly, and most importantly, retained earnings unchanged from the previous year. Ideally, the accountant will be immediately able to sit down with the business owner and discuss year-end strategies. A perfect file would have less than five year-end adjusting entries.
Similarly, an accountant can do many things to assist the bookkeeper. Being available for guidance and advice on compliance issues throughout the year is invaluable. Also, feedback at tax time will help reduce future year-end entries. The best accountants I work with contact me before they do the year-end entries to tap into my knowledge of the file and ensure their accounting entries won’t mess up my bookkeeping!
In the end, the real winner when bookkeepers and accountants work in harmony are the business owners. They can get on with running their business while a professional partnership takes care of the finances!