As business owners, we know that it’s important and vital to our business to stay on top of the finances. Staying on top of your finances is a key part of being a successful small business owner.
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 the business grows to include more customers, vendors and employees, it can get more difficult to keep track of your finances on your own. At some point we need to look to hire a professional. However, who do you hire—bookkeeper or an accountant? Aren’t they the same?
People often get these confused and think they do the same thing. Even they there are some similarities, we are going to break down the differences between each.
An Overview of Bookkeeping vs Accounting?
Bookkeeping is a transactional and administrative role that handles the day-to-day task of recording financial transactions. This would include recording purchases, receipts, sales, payroll, and payments. Accounting is more advisory role, providing business owners with financial insights based on information taken from their bookkeeping data.
Bookkeeping generates data from the recording of the financial activities of a business while accounting translates that data into helpful information, insights, and strategies for the business owner.
What does a bookkeeper do?
A bookkeeper’s role is to maintain complete accurate records of all money that has come in and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way, and their records enable the accountants to do their jobs. A professional bookkeeper while also design a system on how to efficiently record these transactions.
Typical bookkeeping tasks would include:
- Recording financial transactions
- Posting debits and credits
- Creating invoices
- Managing payroll
- Maintaining and balancing ledgers and accounts
One of the main duties of a bookkeeper is maintaining a general ledger, which is a document that records the amounts from sale and expense receipts. Each sale and purchase made by your business must be recorded in the ledger, and some items will need documentation. This ledger is usually created in accounting software such as QuickBooks.
What credentials does a bookkeeper need?
Even though, there are not any formal educational requirements to become a bookkeeper, but a bookkeeper must be knowledgeable about financial topics and terms and strive for accuracy. Generally, a bookkeeper’s work is overseen by an accountant or the small business owner. A bookkeeper, though, is not an accountant, nor should Li
Licensing and certification are available for bookkeepers. Both the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) offer accreditation, licensing to bookkeepers, and continue education.
A bookkeeper with professional certification shows he or she is committed to the trade, possesses the skills and expertise required, and is willing to continue learning new methods and techniques.
What does an accountant do?
Accounts look at the big pictures by analyzing the financial data recorded by the bookkeeper and provides business owners with important business insights and financial advice based on that information.
Typical accountant tasks would include:
- Verifying and analyzing data
- Generating reports, performing audits, and preparing financial reporting records like tax returns, income statements, and balance sheets
- Providing information for forecasts, business trends and opportunities for growth
- Helping the business owner understand the impact of financial decisions
- Adjusting entries
If your accountant or CPA does all of your bookkeeping, you may be paying more than you should for this service.
What credentials does an accountant need?
Accountants have varying qualifications depending on their experience, licenses, and certifications. To become an accountant, the individual must earn a bachelor’s degree from an accredited college or university.
There is a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you before the IRS if you’re audited.
When you’re looking for a CPA, look for one who understands tax law and accounting software. They should understand your industry and what the needs and requirements are for your business.
When to hire a professional bookkeeper or accountant?
It can be daunting to decide when to hire a professional bookkeeper and account. There are several options available to choose from. Some companies will hire some to work inside the company to handle both bookkeeping and accounting. Some companies will outsource both services because it’s more cost-effective. Whichever method you choose, the results will be the same if you hire a professional.
You need to consider hiring a bookkeeper and accountant if you are experiencing the following:
- You’re spending more time on bookkeeping tasks than growing your business.
- You’re behind on your managing the transactions in your books.
- Your business is experiencing growth.
- Your business’s taxes are complex.
Whether you hire an accountant, a bookkeeper, or both, it’s important that the individuals are qualified by asking for client references, checking for certifications, or performing screening tests.
If you are not sure where to begin, give us a call and we can walk you through it.