Most business owners, workers and people in general, use the terms “bookkeeper” and “accountant” interchangeably. However, what these people fail to realize is that these are actually two very different occupations that provide distinct yet complimentary services.
The fact shouldn’t be that surprising, because seemingly a lot of small business leaders aren’t really that informed about their finances. According to WASP Barcode’s 2015 Small Business Report, roughly 60% of small business owners don’t feel like they are “very knowledgeable” about accounting and finance aspects of their business.
As this Forbes article explains, this mainly occurs because simply observing accounting and finance professionals leads many business owners to believe that accounting is a strange, arcane language understood by selected few professionals.
Since most people would be hard-pressed to describe between an accountant and a bookkeeper, we should take a look at some of the main differences between the two professions. Hopefully, this will allow you have a better grasp of the financial situation in your company and help you which one of them you should you hire if needed…
Bookkeepers vs. Accountants
As we already mentioned in the opening paragraph, the main thing you need to know is that both of these professionals share two basic, common goals. According to Inc. these two goals are:
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Keeping track of your expenses and income in order to improve your chances of making a profit
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Collecting financial data about your business to file your tax returns and registration papers
However, although they share common goals, they are there to support your business in completely different stages of the financial cycle. And now, let’s look at some of the differences between the two…
The Function of Bookkeeping
Essentially, bookkeeping is there to help record your daily transactions easily and consistently. So naturally, as Harold Averkamp of accountingcoach.com explains it, it’s a vital component to building a financially successful company. Moreover, you also need to know that a bookkeeper will:
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Record all of your financial transactions
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Post your debts and credits
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Produce invoices on a daily basis
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Complete your payroll
Possibly the most important component of bookkeeping is maintaining a general ledger – this is a basic document that records the amounts of money you’ve got from sales and expense receipts. Bookkeepers refer to this as posting and the more sales you complete, the more often the ledger is posted.
Needless to say, the complexity of the bookkeeping system largely depends on the size of your business and the number of sales you complete on a daily monthly and yearly basis. Every single item you sell needs to be recorded in the ledger and some items even need supporting documents for the IRS.
The Function of Accounting
Accounting is also a complicated process that uses financial data compiled by the business owner to produce financial models based on this information. Compared to bookkeeping, which is mostly transactional, accounting is a much more subjective process. Your accountant will:
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Prepare the financial statements of your company
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Analyze the costs of your operations
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Complete your income tax returns
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Record expenses that haven’t been recorded in the bookkeeping process
All in all, accounting is there to give you a better understanding of your profitability and rise your awareness of cash flow in your business. Most owners look for accountants to help them with tax planning, tax filling and financial forecasting.
What Credentials Should You Look for When Hiring?
Since you now have a better understanding of the differences between bookkeeping and accounting, you need to understand the different kinds of credentials both professions have in order to determine, how, where and when to use each.
On one hand, most bookkeepers have anywhere between two to four years of education – some have an associate’s degree while other have a cert IV in bookkeeping. In order to find a successful bookkeeper, you need to look for a person that’s knowledgeable in key financial topics. In most cases, bookkeeper’s work has to be overseen by an accountant and if you don’t have one, you’ll need to oversee his work yourself.
On the other hand, a person needs to have a bachelor’s degree in accounting just to qualify for the title of an accountant. Of course, you don’t actually need to hire someone who has a specific degree in accounting, however, you should make sure that this person at least has a finance degree. And if you’re willing to some additional money on a more-experienced person, you should look for a person that has the title of CPA (Certified Public Accountant).
Final Thoughts
If you want to have long term success in your industry, you need to have properly organized financial records, smart financial strategy and accurate tax fillings and for that, you need both an accountant and a bookkeeper.
While this may have a big impact on your budget, you should keep in mind that keeping track of finances is not an easy job. According to PRNewswire’s recent survey, around 40% of small business leaders say that bookkeeping and taxes are the worst part of running a business.
Hiring financial professionals will ensure that your finances are properly balanced and allow you to focus on other important aspects of your business. The bottom line – investing some money into your financials will only allow your business to have a financial stability and grow faster.
