Accountant or bookkeeper? Which professional is right for you?
The classic image of the entrepreneur is of a business owner tirelessly forging ahead on their own, facing the slings and arrows of the market, and coming out on top. But the truth is, in business as in life, most of us need a little help from others to get by.
Nowhere is this more the case than when it comes to managing your company’s financial health. While many small business owners start out with a DIY approach to managing their books, more established entrepreneurs often turn to bookkeepers or accountants for help.
In this guide, we’ll unpack the differences between bookkeepers and accountants in order to help you understand the function of each role, and how each is essential in their own way.
Bookkeeper
A bookkeeper records your daily transactions. Their job is to track when money flows in and out of your business.
In the past, bookkeepers would write these transactions down in a journal, a kind of financial rough draft. Later, they’d be entered into the business’s general ledger. This process was called posting, and the journal and ledger were literally the books the bookkeeper kept.
Today, for the most part, bookkeeping has been totally digitized, and posting to the general ledger takes place through software.
Bookkeepers handle some or all of the following:
- Recording financial transactions
- Posting debits and credits
- Paying your business’s outstanding invoices
- Invoicing clients and collecting payments owed to your business
- Maintaining and balancing subsidiaries, general ledgers and historical accounts
Every transaction—whether sale or expense—must be recorded in your business’s general ledger. The IRS goes into more detail about what types of business transactions need supporting documents on their website. They also explain why it’s necessary to keep business records.
Accountant
While bookkeeping is largely transactional, accounting is a more high-level, subjective process in which an accountant takes information compiled by a bookkeeper and uses it to produce financial models. Think of accounting as the next layer of financial management above bookkeeping.
The process of accounting includes:
- 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
An accountant produces reports that illustrate the progress of key financial indicators. These make it easier to track a business’s actual profitability and cash flow. Business owners often turn to accountants for help with financial forecasting, strategic tax planning, and tax filing.
To qualify for the position, an accountant typically needs a Bachelor’s Degree in Accounting. For those without a Bachelor’s, a finance degree is considered a suitable substitute. Unlike bookkeepers, accountants are able to collect additional professional qualifications on top of their degrees.
For instance, with enough experience and education, an accountant can be granted the title of Certified Public Accountant (CPA), one of the most common types of accounting designations. To qualify, they must both possess experience as a professional accountant and pass the Uniform Certified Public Accountant exam.
Blurring the Lines
New technology has changed the work that bookkeepers and accountants do. In the past, bookkeepers would often handle a business’s payroll. Today, this task can be completed more efficiently by services such as Gusto.
Likewise, accountants once prepared [financial statements](https://bench.co/syllabus/accounting/how-to-read-financial-statements/?utm_source=GuestPost& utm_medium=Gusto&utm_campaign=bookkeepersvsaccountants) for their clients. Now, bookkeeping software or services such as Bench are more likely to handle the task.
So, Which One Do You Need?
Bookkeepers and accountants work best in tandem. When the person managing your long-term financial forecasting receives timely and accurate financial records from the person doing your books, they’re better set up to model your business’s future progress.
However, if you’re using a DIY method of bookkeeping—an approach best suited to smaller businesses—it may still be possible for you to manage your finances without the aid of a bookkeeper. If you can provide accurate, on-time financial statements to your accountant, they can use them to complete your tax return and collaborate with you on other tasks.
The DIY method leaves open a lot of room for error, though, especially if you’re low on bookkeeping experience. For instance, you may categorize transactions incorrectly, fail to track tax-deductible expenses, misreport your expenses—drawing the ire of the IRS—or miss out on money-saving end of year tax moves.
Also, when you eventually sell your business, potential buyers will be looking for orderly, correct financial data. If your financial statements are in disarray, you may have a hard time convincing buyers that your business is a good investment.
Smart entrepreneurs know they can’t always go it alone. Sometimes, turning to a professional for help is the smartest move you can make. To ensure your financials are one hundred percent correct, you should have both a bookkeeper and an accountant on your support team. They may cost you more in the short-term, but the financial savings you’ll gain and the hours of paperwork you’ll eliminate will make it a smart long-term investment.
