Many people think the terms “bookkeeper” and “accountant” are interchangeable and can be used to describe people who do the same job. While there is some crossover, bookkeepers and accountants perform distinctly different roles for the businesses they serve. Business owners that don’t realize the differences can end up hiring the wrong firm, which can be very costly.
For instance, many business owners end up receiving big bills from their tax accountant because they pass them unorganized financial records. The tax accountant has to clean-up the books before they can prepare the taxes and they of course bill for the additional work. Paying an accountant to organize your books is like buying a luxury car when you would have been fine with the compact. The bottom line is a bookkeeper should maintain your financial records and paying a tax accountant to do it can cost you about three times more.
Bookkeepers versus accountants
Like the name implies, bookkeepers are responsible for maintaining their client’s books (or general ledger, as it’s technically called). This means they’re in the books on a daily basis, entering and organizing every single financial transaction that occurs within the business.
A bookkeeper’s common responsibilities are listed below.
- Compiles data daily
- Categorizes expenses in the general ledger
- Analyzes general ledger for accuracy
- Reconciles bank statements
- Prepares adjusting entries
- Generates financial statements
Accountants, on the other hand, take the work done by bookkeepers and build on it. Using an updated and accurate general ledger, they perform the following tasks.
- Analyzes the company’s financial data
- Prepares income tax returns
- Provides beneficial tax planning advice
In general, bookkeepers require a big picture understanding of the businesses they work with. Bookkeepers should also be familiar with Generally Accepted Accounting Principles (GAAP), which outline the standards and procedures for keeping proper financial records.
An accountant requires more in-depth knowledge of GAAP and the Income Tax Act. Accountants receive certifications and ongoing education in order to stay current with GAAP and tax changes. Using their extensive knowledge of tax regulations, they are able to offer advisory services that help the small business owner set up internal controls and perform strategic tax planning. Accountants also take internal financial statements and prepare them for external use by third parties, such as lenders and investors.
In summary, a bookkeeper takes care of the general ledger while accountants give context to it by analyzing the data and providing strategic advice.
Do I need a bookkeeper or accountant?
If you want to have a successful business, you’re going to need both eventually. All your financial transactions have to be recorded in your general ledger no matter what stage your business is at, so working with a bookkeeper is never a bad idea. In fact, employing a bookkeeper early on ensures your general ledger and chart of accounts are setup correctly. Many business owners take on the responsibility when they’re first starting and later outsource it as the business grows. Maintaining the books is a time-consuming and tedious responsibility that needs to be done regularly so ask yourself if you really have the time and energy to handle it all on your own.
You’ll certainly need an accountant come tax time and as your business grows. Just don’t fall into the trap of thinking you can get two for the price of one by expecting your accountant to be your bookkeeper too. As you’ve learned from the example at the beginning of this blog post, accountants tend to charge much more than bookkeepers.
BookKeeping Express (BKE) provides full-service bookkeeping. Visit our features page to learn how we can serve your business.