While an accountant or accounting firm may offer bookkeeping services, bookkeepers may not be licensed CPAs, have enough knowledge to walk you through deductions, or offer tax preparation services even if they have a PTIN. Both accounting and bookkeeping are a part of tracking your profits and expenses, and both help with taxes and business growth, but they serve different purposes.
Knowing the differences will help you know which to hire first, and who to approach for specific types of services and advice. That’s where we come in.
This guide starts with the definitions of both to make it clear how the two are different. Then we go into their responsibilities, and how these two separate types of financial professionals work together to help your business succeed.
What Accounting and Bookkeeping Are
- Accounting is the process of sorting, storing, and reporting financial transactions to determine a company’s financial health so the stakeholders can make decisions about growth and downsizing, taxes can be processed, HR knows what benefits the company can afford to offer their teams, and any other decision that involves finances.
- Bookkeeping is the day-to-day recording and sorting of transactions including accounts receivables, purchases, and payments in the company’s ledger (also known as “the book”). Bookkeeping sorts these into usable groupings to make analyzing finances easier for tax preparation, financial reporting, and decision-making, while also processing payments including payroll and vendor invoices.
Neither accountants or bookkeepers need to be licensed, but a CPA who signs off on audit reports, documents for the government including IRS audits and SEC filings, as well as legal documents where financial information is being transferred or disclosed that require a CPA will need a license. If either an accountant or bookkeeper offers tax preparation service and collects payment, they will need a Preparer tax identification number (PTIN) that gets included on the submission.
Hiring a bookkeeper before an accountant is a good decision if you have the knowledge to do your own taxes accurately and you want to free up time for you to manage your business instead of filing expenses and running payroll. If you aren’t the best with uploading receipts and attention to detail is not your strong suit, bookkeepers will keep your ledger clean and reduce errors.
It is better to hire an accountant instead of a bookkeeper first when you want to make sure your taxes are done properly with the maximum deductions allowed; you want protection and representation in an IRS audit; or you plan on going into a growth cycle and want to expand operations, are hiring, or are making investments. Accounting firms or a one-person consultancy may offer bookkeeping services for a small additional fee. It all comes down to what makes the two professionals different in their responsibilities.
The Differences in Responsibilities
The main difference between bookkeeping and accounting is that bookkeepers record and process transactions in the general ledger while making sure they are correct, and accountants analyze the data from the books for decision making purposes. While they can be similar, the core roles are different.
Bookkeeper Responsibilities:
The bookkeeper is responsible for:
- Filing and sorting expenses.
- Sending out invoices and recording accounts receivables (payments).
- Matching revolving credit (credit cards and lines of credit) expenses with bank or credit union fees.
- Calculating and processing payroll including tax deductions.
- Producing financial statements including a company’s balance sheet, income statement, Profit and Loss statements (P&Ls), and Schedule C (Form 1040) if you’re a sole proprietor or single-person LLC.
- Checking accounts on the general ledger (line items) for accuracy to ensure each decimal is in the right place and the amounts match the receipts and deposits.
- Tracking the value of assets including unsold inventory and extra stock.
- Making payments to vendors including utilities, suppliers, insurance companies, contractors, landlords, and financial institutions.
If money is coming in and out of a company, it is the bookkeeper that controls it. This is also why they manage your company’s ledger as they have the most knowledge of what is being spent, what is coming in, and the bookkeeper will keep track of the fees being applied accordingly.
Accountant Responsibilities:
An accountant’s job is to:
- Analyze the financial statements to produce recommendations on how to spend, save, or keep cash flow moving in the correct direction.
- Guide financial strategy for the company.
- File taxes, reconcile information and paperwork with the IRS and SEC, and represent the company during an IRS audit.
- Decide when it is time to cut costs and which costs can be cut to keep the company afloat.
- Perform compliance audits to ensure legal requirements are being met for tax laws and industry regulations, or work with the CFO for Sarbanes-Oxley Act (SOX) and to apply Generally Accepted Accounting Principles (GAAP).
Your accounting team is responsible for anything involving financial decision-making including growth, hiring, downsizing, and future planning. They manage anything that has a mix of legal with financial information including taxes and preparing paperwork for the executive team that goes public, and does assessments when you need to cut costs, increase efficiencies, and remain compliant with financial best practices.
When the Two Work Together
While accountants handle taxes and bookkeepers manage tax deductions in payroll, the two are not as similar in responsibilities as they sound. But they do have some crossovers.
The first place they cross is when it is tax time. Your bookkeeper runs your annual numbers to create financial statements so your accountant can review and process your taxes.
Accountants will help you find ways to save money when you need a larger reserve for investing, hiring, or adding new benefits, and the bookkeeper will be able to quickly recommend the expenses that can be cut.
When it comes to expensive equipment purchases and deductions like Section 179 and 6,000 pound rule, your accountant will recommend whether you should use the deduction or depreciation while the bookkeeper makes the payments and applies the expenses and asset values in the books. The same applies to financing it.
Your accountant will help you find the best option for equipment financing and they’ll help you organize your financial paperwork to help with the application. Once approved, your bookkeeper will add the money to your ledger and begin making payments based on the terms of the business loan.
Bookkeepers and accountants work hand-in-hand when it comes to your company’s finances. The bookkeeper makes sure everything is accounted for and your ledger is clean while your accountant uses this information to help you make decisions based on finances and for legal work like taxes.
National Funding does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
