For many small business owners, the terms bookkeeping and accounting are used interchangeably. And while the two roles share some crossover, they’re not synonymous. An accountant may be considered a bookkeeper, but a bookkeeper can’t be an accountant—at least, not without some extra schooling and certifications.
But what are the specific differences between bookkeeping vs accounting? When is one financial professional better for your business than the other?
Let’s crunch the numbers.
What’s a Bookkeeper?
Staying on top of your business's finances is a critical practice for any entrepreneur. It’s important that you have a finger on the pulse of your cash flow, inventory, debts, liabilities, and various other financials.
A bookkeeper plays a pivotal role in maintaining that financial accountability. They perform a transactional and administrative role, recording and managing the day-to-day financial transactions of the business. This includes keeping thorough financial records of:
A bookkeeper can be anyone who’s good with numbers and maintaining ledgers. There are typically no formal training or licensing requirements. As a result, it’s easier to become a bookkeeper than an accountant. A small business owner or company can look at these financial records and information to make financial decisions in the future.
For example, realtors will need to record every financial transaction that occurs between sellers, buyers, and brokers, making sure each employee and expense is classified correctly. This will ensure that transactions are in order for upcoming tax and investment purposes.
Even a local hair salon benefits greatly from meticulous bookkeeping practices. Salon owners will need to log expenses for things such as equipment, lease, and payroll as well as the primary sources of income earned from salon and spa services. This will be essential for managing budgets and preparing for tax season down the line.
Hiring a bookkeeper or even using bookkeeping software will likely be less expensive than an accountant. According to the Bureau of Labor Statistics (BLS) the median annual booker salary is $42,410, with an hourly rate of $20.39. But how much a bookkeeper earns may be dependent on their education, experience, location, and industry. Additionally, a bookkeeper can take on greater responsibilities by transitioning from an entry-level position into a role as a full-charge bookkeeper.
What Are the Roles of a Bookkeeper?
Boiled down, a bookkeeper is in charge of tracking the money going into and flowing out of a business. The primary duty is to maintain a general ledger—the document that records sales and expense receipts. A ledger could be anything from a physical book (as it was traditionally) to an excel spreadsheet, to an automated bookkeeping software like QuickBooks.
Other steps that contribute to the bookkeeping process include:
- Recording all financial transactions
- Producing invoices
- Managing payroll
- Posting debits and credits
Maintaining a ledger and keeping proof of cash inflows and outflows is not simply a wise financial practice, it’s often required to comply with IRS laws. According to the IRS, supporting business documents you’re expected to keep include:
Gross receipts – Income the business receives. Documentation includes:
- Receipt books
- Cash register tapes
- Deposit information
- Forms 1099-MISC
Purchases – Items you purchase and then resell to customers. Documentation includes:
- Proof of payment/electronic funds transferred
- Cash register tape receipts
- Credit card receipts and statements
Expenses – Costs and daily expenses you incur to run the business. Documentation includes:
- Proof of payment/electronic funds transferred
- Cash register tape receipts
- Account statements
- Credit card receipts and statements
Assets – Property that your business owns and uses. Documentation includes:
- The date of asset acquisition
- Original purchase price
- Cost of any improvements
- Deductions taken
- How you used the asset
- Selling price and date
Because of this, businesses must be careful who they trust to handle their books.
When Should a Business Hire A Bookkeeper?
Often, in the early stages of a business lifecycle, the owner of the business handles bookkeeping duties. With limited resources, it may make more financial sense to do it yourself. But as the business grows, so too do the demands. Not to mention, bookkeeping becomes more complicated and time-consuming.
Jessica Reagan Salzman founded Heart Based Bookkeeping to help small business owners who loved what they did, but couldn’t keep up with managing the number side of the business.
Some of the more common reasons why people say they need her services include:
- “I have no idea how to start”
- “I can’t keep up!”
- “I don’t think I can afford a solution.”
- “I don’t have any time.”
- “I have a home-based business.”
- “I do what I can, but I’m still in the dark when it comes to my business’s money matters.”
Jessica and her small team take that load off the shoulders of small office and home businesses, entrepreneurs, and work-from-home parents, providing several benefits, including:
- Preparing for taxes and keep tabs on deadlines
- Monitoring payroll expenditures
- Tracking deductions for taxes
- Creating and review your budget
- Remaining compliant with IRS
- Managing profit margins
What’s an Accountant?
When most people think of an accountant, chances are, tax planning and bookkeeping are the activities that come to mind. This is why the two roles are often seen as one and the same when it comes to bookkeepers vs accountants.
While an accountant does run the company’s numbers and may have control over the general ledger, an accountant is responsible for far more than crunching the numbers and tax planning.
An accountant’s role can be viewed as less transactional and more analytical. Accountants take the financial data that’s been meticulously recorded and then extrapolate trends and information. By looking at the numbers, they can provide crucial business insights and advice for how to keep optimizing.
For example, KCO Inc., a Boulder-based accounting and consulting firm, provides real estate accounting services and advice by taking technical and practical matters into account. That involves staying up to date on tax laws to reduce tax liabilities. The company also provides individualized solutions with strategic guides for realtors and real estate companies to follow.
Retail shops see the benefits of accounting as well, especially when it comes to staying on top of seasonal trends and fluctuations in the sales cycle. An accountant can help retail stores stay on top of month-to-month spending but also develop strategies to reduce excess inventory by planning ahead for end-of-season discounts and sales.
For many small businesses, not having a tight grasp on their finances was the cause of their demise. In fact, according to a Xero study, 65% of failed business owners cite financial mismanagement as their chief misstep. In all likelihood, a significant percentage of them failed to heed their accountant's advice or didn’t seek it out.
Requirements to Become an Accountant
As mentioned, there are both educational and credential requirements to become an accountant. At the very least, they must earn a bachelor’s degree in accounting from an accredited college or university.
A certified public accountant (CPA) takes that a step further. They not only have to meet the schooling prerequisites, they must also satisfy state requirements and pass the CPA exam. From there, they’re expected to maintain their credentials and stay up-to-date with laws and regulations.
Because the barrier to entry is higher, accountants often make more than bookkeepers and will be more expensive if your business is looking to hire one. According to the Bureau of Labor Statistics, the median pay for an accountant was $73,560 annually, at $35.37 per hour.
What Are the Roles of an Accountant?
An accountant can wear several hats—all of which are in some shape or form related to the company’s finances. Ideally, every one of these advisory services is aimed at maximizing profitability and preparing the business to scale. Common roles of an accountant include:
- Overseeing the general ledger – You may have a bookkeeper and an accountant, or just an accountant. In either case, the accountant takes preeminence when it comes to financial oversight. They’re responsible for ensuring that numbers add up and that all your I’s are dotted and T’s crossed. As a result, the bookkeeper typically reports directly to the accountant.
- Financial reporting – Generating business reports and financial statements are incredibly important, not just to have better oversight over the company, but also to comply with IRS regulations. Typically, a company will need to have at least four financial statements kept and updated on a periodic basis (monthly, quarterly, or annually):
- Balance sheet
- Cash flow statement
- Income statement
- Shareholders equity statement
- Financial forecasting – Most businesses do not have a CFO or even a part-time CFO until they’re making tens of millions of dollars of annual revenue. In the interim stages of a business’ development, an accountant must step into the financial planning and analysis role. They can leverage historic financial reports to gauge the company’s financial strength and forecast the future. Forecasting tasks include:
- Setting long-term financial goals
- Identifying investment opportunities and targets
- Performing break-even analysis
- Projecting P&L and balance sheets
- Utilizing business ratios
- Making financial assumptions
- Managing financial data – If you use an accounting system, the accountant is responsible for managing how data is stored, organized, and updated.
- Helping you select a business structure – If you’re in the early stages of a startup, an accountant can look at the business and then advise you as to the best business structure for the company. Whether you operate as an LLC, C Corp, S Corp, or sole proprietor can have a significant impact on your taxes and liability. Or, you may wish to change your existing business structure to one that better reflects your company’s current operational status.
- Regulatory compliance – Depending on your industry, there may be financial disclosure and regulatory requirements that your business must satisfy and report on. Your accountant can ensure that you’re complying with the most current rules and regulations.
- Increasing revenue – There are likely small tweaks you could make to optimize the way your business operates. According to small business CPA Angela L.H. Sayers, “Organizations can lose a lot of money due to ineffective spending and theft. Both of those issues can be drastically reduced by implementing simple internal controls.”
Master Your Finances with Help from Nextdoor
Although their roles are different, both accountants and bookkeepers can play an integral part in your business operations. It’s their job to ensure that the numbers add up and that the company is financially healthy. And whether you need one, the other, or both largely depends on your business.
Regardless, if you want help finding the perfect match for your business, use your Business Posts to gather local recommendations.
Sign up on Nextdoor today, to get started.
Bureau of Labor Statistics. Bookkeeping, Accounting, and Auditing Clerks. https://www.bls.gov/ooh/office-and-administrative-support/bookkeeping-accounting-and-auditing-clerks.htm
IRS. What kind of records should I keep? https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep
Heart Based Bookkeeping. http://heartbasedbookkeeping.com/
Xero. Make or Break? https://www.xero.com/content/dam/xero/pdf/Xero-Make-or-break-report.pdf?utm_source=awin&utm_medium=affiliate&utm_campaign=uk-d-smb_Skimlinks&awc=20923_1628525772_16fe4432b1e9c675c266236c79e5050d
Bureau of Labor Statistics. Accountants and Auditors. https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm
Angela Sayers CPA. Why You Need a CPA. https://www.angelasayerscpa.com/why-you-need-a-cpa/
The Nielsen Company. Global Trust in Advertising and Brand Messages.
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