CPA vs Bookkeeper: What's the difference?
Introduction
When you’re running a small business, it can be hard to know when you need help keeping your books in order. Do you need someone who has the expertise of a CPA? Or can a bookkeeper handle all of your business finances?
I recently had this very question from one of our clients who was struggling with the accounting side of things. They had previously hired an expensive accountant that charged them $150/hour for basic tasks like reconciling their bank accounts and preparing financial statements. In addition, they were also spending tons of time on these same tasks themselves because they didn’t have any experience doing them in-house (and still don’t).
This is why it's important to understand the difference between bookkeepers and CPAs before deciding if either agency might be able to help streamline your financial processes - or even take them over entirely!
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A lot of business owners ask us about the differences between a CPA and a bookkeeper.
As a business owner, you may be wondering what the difference is between a CPA and a bookkeeper. We're here to help clear up any confusion.
A Certified Public Accountant (CPA) is an individual licensed by their state government to give advice on financial decisions related to taxes and accounting. CPAs provide many services including tax planning, compliance, and preparation; auditing financial statements; management advisory services; or working with businesses on issues such as valuation of assets and liabilities, mergers and acquisitions (M&A), liquidation plans, personal property tax issues or other matters related specifically to businesses.
Basically, a CPA provides advice and strategic direction for your business, while a bookkeeper focuses on day-to-day transactions.
A CPA is more proactive than reactive when it comes to the state of your business finances and helps you avoid any possible issues by providing insight into future revenue streams. A bookkeeper does all the record-keeping that makes up a good portion of what you pay them to do—but they don’t look at the big picture or provide counsel on how to improve your bottom line.
There’s no requirement that you have both (though many businesses do), but you may find yourself needing one or the other at different times.
However, it’s worth noting that while one is focused on day-to-day transactions and money management, the other takes a broader approach.
A bookkeeper will take care of your daily financial operations, like recording your sales and purchases in QuickBooks or Peachtree Accounting software. They may also be responsible for tax preparation and filing. A CPA does much of this too—but also analyzes your company’s financial situation from a strategic perspective as well as looking at tax implications based on how you run your business.
We break down exactly what each one does in this short article.
First things first: CPA and bookkeeper are not one and the same. There's a lot of overlap between the two professions, but each has its own set of responsibilities.
A certified public accountant (CPA) is a professional who performs financial planning and analysis for businesses, individuals, and organizations. A bookkeeper does the daily recordkeeping for these same entities; they're responsible for keeping track of income and expenses so that you have an accurate picture of your company's finances at all times. You may choose to hire both a CPAs and bookkeepers if your business needs it—or just one or the other depending on what you need help with most.
CPAs handle compliance work like tax and audit prep, financial statements and financial planning. They’re also the ones who can help you understand what those documents mean.
CPAs are the ones who can help you understand what those documents mean. CPAs focus on analysis, so they're more proactive than reactive when it comes to the state of your business finances. They provide advice and strategic direction for your business, while bookkeepers are more operational in nature.
A CPA will tell you how much money you should be making at this point in the year and will set goals for next year. A bookkeeper will tell you if you've made that goal or not, but without a larger picture view of where your company is headed financially, it's difficult for them to make recommendations about where their services should go next.
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Bookkeepers organize and categorize your business’ financial information, typically on a daily basis.
Bookkeeping is the process of recording financial transactions. This typically involves creating and maintaining records of purchases, sales, income received, expenses incurred, and other financial information. Bookkeepers also categorize this information into different accounts to help you easily find and analyze it later on.
Bookkeeping professionals are called bookkeepers because they keep track of your business's books (the financial records). They typically do this by reviewing paper documents such as receipts or statements from banks or credit card companies; entering these into accounting software; matching up accounts (like checking and savings); ensuring that everything adds up; making sure all transactions are listed in the correct period (e.g., month); reconciling bank statements; calculating taxes owed; balancing the totals at year-end so that you have accurate financial statements for tax purposes
CPAs focus on analysis, so they’re more proactive than reactive when it comes to the state of your business finances.
>The difference between CPAs and bookkeepers is that CPAs focus on analysis, so they’re more proactive than reactive when it comes to the state of your business finances. They can help you understand what those documents mean, and they’re the ones who will be able to tell you how well your business is doing financially.
>CPAs are also regulated by law, which means they have to pass a series of tests before becoming certified accountants, while bookkeepers do not have such requirements. This means that if you need an audit or other type of formal financial report done for a client or bank, a CPA will be able to complete this task much more easily than a non-certified accountant would be able to do so.
While certifications vary by state, CPAs are usually required to have more education (typically including a graduate degree) than bookkeepers.
Differences in education:
While it varies by state, CPA certification generally requires more education than bookkeeping certification. Many CPAs have an undergraduate degree in accounting and then complete a Master of Business Administration (MBA) or Master of Science in Accounting degree before they sit for the CPA exam. Bookkeepers usually complete an associate's degree at a technical school to become certified as a bookkeeper, though some may also have an associate's degree from a four-year college or university.
Differences in experience:
The more experience someone has working with business clients, the higher their rate is likely to be—and many CPAs have several years' worth of experience compared with other business professionals like bookkeepers and accountants who perform similar functions within companies but do not specialize in tax preparation services as CPAs do. While some states don't require this kind of specialization from all professionals who want to handle their company's finances; most require that anyone handling tax preparation paperwork has passed some type of examination related specifically to those types of activities rather than general knowledge about how business should operate within any given industry sector and look at how everything fits together so effectively without getting lost along the way when trying something new for themselves first hand."
Understanding how each one works will help you know when it might be time to call in some help with your finances.
It's important understanding the difference between a CPA and a bookkeeper will help you know when it might be time to call in some help with your finances. This is not meant to be an exhaustive list of all the things CPAs and bookkeepers do, but rather a general overview of each category's responsibilities:
CPAs have more education than many other finance professionals. Their training includes accounting, tax law, ethics, and professional standards.
Bookkeepers are trained in bookkeeping practices that follow generally accepted accounting principles (GAAP). Their duties include entering transactions into the books of record; preparing journal entries; closing financial statements at year-end; reconciling accounts; paying bills and filing taxes on behalf of businesses and individuals.
Conclusion
It’s important to understand the differences between a CPA and a bookkeeper, and how each one can help your business grow. We have both bookkeepers and CPAs at Harrisburg Bookkeeping, and we would love an opportunity to work with you!
Use this link to get a free quote today! Click Here
