Hiring a Bookkeeper vs. a CPA: The Difference Between Bookkeeping and Accounting

As a small business owner, managing day-to-day operations is already a full-time job. When you add in bookkeeping and accounting, your responsibilities can quickly become overwhelming, especially as your business grows in size and complexity.

Many self-employed people outsource tasks that require too much time or expertise, but to hire the right professional, you must understand the difference between bookkeeping and accounting.

Here’s what you need to know to make informed decisions about your business’s financial management.

What Does a Bookkeeper Do?

Bookkeeping usually refers to the process of recording your company's day-to-day financial activities. It primarily involves documenting the details of your business transactions, such as receipts and expenses.

Bookkeepers also perform the administrative tasks necessary to organize large amounts of financial data and ensure its accuracy. For example, that includes:

• Creating a chart of accounts: This refers to the master list of your business's asset, liability, equity, revenue, and expense accounts. Bookkeepers and accountants reference it when recording financial transactions and categorizing activities. 

• Reconciling account balances: This process involves comparing your financial records to your bank account and credit card statements to ensure your records are accurate. Bookkeepers typically do this every month.

• Creating financial statements: Bookkeepers are usually responsible for preparing the income statement and balance sheet to track your financial performance and financial position. However, they only build the first draft, and then give it to an accountant for adjustments.

Ultimately, the role of bookkeeping in your organization is to create accurate financial records in a timely manner. That gives your accounting team the raw data they need to fulfill their most important responsibilities.

As a notable example, bookkeepers are responsible for tracking your tax-deductible expenses. Accountants must include those costs on your tax return to reduce your taxable income and minimize the amount you pay in taxes.

What Does an Accountant Do?

Small business accounting typically involves interpreting and analyzing financial data to make better-informed business decisions. It generally requires more expertise and critical thinking than bookkeeping does.

For example, here are some typical tasks an accountant might be responsible for:

• Finalizing financial reporting: Accountants ensure that each financial statement is ready for internal or external use. That often includes using journal entries to record things bookkeepers might not know to record, such as non-cash transactions like depreciation.

• Tax planning and preparation: Accountants can help you develop a strategy to minimize your tax burden, calculate your annual tax bill, and file the forms necessary to remain in compliance with regulations.

• Budgeting and forecasting: Accountants can help create spending plans and forecasts for your business. They can also compare your projected numbers to your actual results, analyze the reasons behind any variances, and help get you back on track with your goals.

If bookkeeping is about recording your financial data, then accounting is about using it to inform your business strategy. That can mean anything from determining how much you owe in self-employment taxes to analyzing the best way to spend working capital.

The Difference Between Bookkeeping and Accounting

Understanding the difference between bookkeeping and accounting is essential to determining what kind of financial service provider would be most beneficial to your business. Let’s contrast the two functions in more detail.

Bookkeeper vs accountant duties

Bookkeeping duties are relatively narrow in scope but must be performed continuously. For example, a bookkeeper may have to record financial transactions and post them to the financial statements daily.

Even the less frequent bookkeeping tasks, such as bank account and credit card reconciliations, should be performed monthly. Timeliness is essential, as it doesn’t matter how accurate your records are if you don’t have them until after the relevant tax deadlines.

In contrast, accounting duties are broader and more complex but tend to be performed only periodically. Many revolve around quarterly or annual tax deadlines and require at least a few months of historical data.

For example, you might only need to contract your accountant to prepare your tax return and discuss your tax strategy once per year. Outside of that, you might only contact them infrequently to discuss novel situations.

Bookkeeper vs accountant education and certifications

While there is some overlap, bookkeeping and accounting involve different skill sets. An accounting degree might make a new bookkeeper more effective initially, but it’s usually not necessary. Just about anyone who’s eager and talented can learn to manage basic bookkeeping without a financial background. Many of the responsibilities require little more than an aptitude for clerical work and attention to detail.

In contrast, accountants need more extensive expertise. An accounting or business degree may be necessary, and positions with more responsibility go to people with advanced qualifications, such as Certified Public Accounting (CPA) licenses.

In fact, the law requires that you have a CPA license to offer certain accounting services. That includes preparing audited or reviewed financial statements, which provide users with some assurance of accuracy.

Bookkeeping vs accounting software automation

Many bookkeeping tasks are easy to automate with software due to their relatively straightforward and repetitive nature. As a result, 74% of small businesses use bookkeeping software to help track their activities and perform monthly reconciliations.

Once you connect these tools to your bank and credit card accounts, they can automatically download your financial transaction data and organize the information. That includes classifying most expenses and generating initial financial statements.

While you can use software to automate some accounting tasks, many still require manual effort. For example, small business accounting software can calculate your tax liability automatically, but it can’t tell you how to prepare your business for a recession like an expert in accounting principles could.

Bookkeeper vs. CPA: Which Should You Hire?

Self-employment requires you to wear many hats, especially in the early days of your business when you’re on a shoestring budget. You typically have to be responsible for every aspect of your operation, including its finances.

However, bookkeeping and accounting are both time-consuming, and accounting may require expertise you don’t have. You might not be able to handle both functions on top of your other responsibilities, especially as your business grows.

It’s often beneficial to let an expert manage the tasks you can’t afford to take on. Full-time support may be too expensive, but you can often receive equal or better results at a fraction of the cost by outsourcing.

Assuming you’re looking for external support, you’ll typically need to decide between hiring a bookkeeper or a CPA. Here’s what you should consider:

• Outsourced bookkeeping services: Professional bookkeepers are best suited to handle day-to-day tasks, like recording financial transactions, performing bank reconciliations, and preparing initial financial statements. Their services may cost less per hour than a CPA’s, but they’re more likely to require a fixed monthly retainer.

• Certified Public Accountant: A CPA is best when you have complex financial needs, such as when you require a tax, advisory, or audit accounting service. They’re more expensive than bookkeepers on an hourly basis but tend to offer a fixed price per engagement so you only pay for the help you need when you need it.

Contrary to what you might expect, many small business owners hire a CPA before contracting a bookkeeper. CPAs are often invaluable for early tax planning, such as choosing your business structure and drafting an operating agreement.

With bookkeeping software, you can often manage your own books well enough until the volume of daily transactions becomes too much to handle. You may need a bookkeeping service then, but not all small businesses reach that point.

How Found Can Help

Found is a business banking platform built with one goal in mind – making self-employment easier. We offer a suite of tools designed to help you run your business, including several that can lessen the burden of bookkeeping and accounting. 

For example, Found includes an auto-save feature that tracks your income and expenses, calculates your estimated taxes in real-time, and automatically sets aside funds to cover your quarterly payments.

Our mobile app also lets you create professional, customized invoices and send them to your clients in minutes. You can use it to accept the most popular payment options on the go, including credit cards, Venmo, and PayPal.

If you’re already working with an accountant or bookkeeper, Found’s accountant access makes it easier than ever to collaborate with them. By giving your financial professional direct access to your Found account, you can create efficiency and eliminate the need to do things like send documents back and forth. When you give your accountant access, your accountant or bookkeeper will be able to do things like viewing and editing account activity, categorize expenses, create and edit expense rules, and more.

Found’s powerful, easy-to-use tools make all the paperwork involved in self-employment simpler than ever. Create an account for free and sign up today!

FAQ

Is bookkeeping the same as accounting?

Bookkeeping and accounting are closely related, but they’re not the same. The bookkeeping process is about recording transactions and organizing financial data, while the accounting process is about using that information to facilitate more complex financial analysis, like tax planning and preparation.

What is the main distinguishing factor between accountants and bookkeepers?

The main distinguishing factor between accountants and bookkeepers is that accountants have deeper financial insight and provide more complex services, including tax and strategic advice based on their analysis of financial information.

Is bookkeeping hard to do yourself?

Bookkeeping can be time-consuming, especially if you have a high transaction volume, but it’s typically not too hard to do yourself. You don’t need a financial background to learn the basics, and software can automate many bookkeeping tasks.

The information in this article is not intended to provide, and should not be relied on, for tax advice.