Business owners are often told that they should hire a professional to help with the financial aspects of their companies. But does that mean hiring a bookkeeper or an accountant? Bookkeeping and accounting are both essential functions in any small or midsize business, and choosing the right level of services for your company's needs is essential to success. This article highlights what the bookkeeping and accounting functions entail and what to consider when determining which role or combination of roles is appropriate.
What Is Bookkeeping?
Bookkeeping involves the day-to-day recording of all financial transactions. The work can be basic and administrative, but bookkeeping is at the financial core of a company and accuracy is of paramount importance. Bookkeeping encompasses the maintenance and balancing of ledgers, handling of accounts receivable and accounts payable and managing payroll. Bookkeeping is considered the first step in the accounting process, so work that is considered bookkeeping often overlaps with accounting.
What Is Accounting?
While bookkeeping records critical data, accounting is the interpretation and presentation of that data. In other words, accounting turns a collection of data into useful information that managers can rely on to determine the health of the business. Accounting focuses on the bigger picture and includes generating and analyzing financial statements, preparing and filing tax returns and providing forecasts and financial advice.
- The main role of a bookkeeper is to maintain accurate and up-to-date financial records.
- The role of an accountant is to analyze financial data to determine a company's financial position.
- Accounting software automates many traditional bookkeeping tasks.
- Businesses that want a higher level of mastery in accounting often hire a certified public accountant (CPA).
Bookkeeping vs. Accounting: Key Differences
Bookkeeping and accounting are necessary to any business. To determine what services your company needs, assess your business's current financial position and consider the type of growth it's expecting, and then decide what tasks you can manage on your own. Sometimes bookkeeping and accounting tasks overlap, but there are some distinct differences, as outlined in the table below.
Bookkeeping vs. Accounting
|Overall function||Keep accurate up-to-date records of all financial transactions.||Use the information provided by bookkeeping to determine a company's financial position.|
|Purpose||Maintain a systematic and chronological record of all financial activities and transactions.||Analyze and interpret data, make financial forecasts and advise business owners on financial decisions.|
|Result||Provide necessary information and data for the accounting process.||Prepare and analyze financial statements used to make informed decisions.|
|Key skills||Be accurate and knowledgeable about bookkeeping; work is reviewed by internal or external accountant.||Understand more complex financial matters and interpret data for business owners.|
|Typical tasks||Post journal entries, send invoices, record payments, manage payroll and reconcile accounts.||Prepare adjusting entries, analyze costs, perform audits, prepare and file tax returns, provide tax planning and advise business owners.|
Bookkeeping tasks tend to be transactional in nature and center on maintaining accurate records of all financial activity. These tasks include:
Recording transactions: Bookkeepers record every financial transaction in the general ledger, a master document that shows credits, debits and balances for each financial account. Bookkeepers often use double-entry accounting, a system that requires two balancing entries — one debit and one credit — for every transaction within a business to ensure accuracy.
Reconciling bank statements: This task, often handled monthly, involves matching recorded transactions in the bank account subledger and general ledger with bank statements to ensure that accounts are balanced.
Handling accounts receivable and accounts payable: Accounts receivable involves generating invoices, establishing terms of payment and tracking down overdue payments. Accounts payable involves making sure vendors are paid in a timely fashion.
Managing payroll: Bookkeepers are often charged with reviewing employee time sheets, calculating deductions and processing payroll.
All of these duties might be routine, but all businesses should work through this accounting checklist. Accounting software can help businesses automate many of these tasks, reducing the risk of manual errors.
Accounting tasks are often subjective and require a broad financial perspective. Accountants audit and analyze the financial data bookkeepers record and provide business insights based on that information. Typical accounting tasks include:
Preparing adjusting entries: This task entails recording income and expenses that have occurred but aren't yet recorded in the bookkeeping process, such as interest earned but not yet received.
Conducting audits: Accountants perform routine audits to ensure that financial statements and the books are following ethical and industry standards.
Preparing and filing tax returns: Accountants are especially helpful during tax season. They handle tax planning, preparation and filing, which helps minimize tax liability and the chances of being audited by the Internal Revenue Service (IRS).
Providing financial advice: Accountants can help business owners understand the impact of financial decisions and assess the health of the company.
No credentials or licenses are required for bookkeepers. In a small business, the owner often starts out performing these tasks. Once a business begins to grow, however, a dedicated bookkeeper may become necessary. Business owners may want to consider bookkeepers with the following optional certifications.
- The certified bookkeeper (CB) designation is earned from the American Institute of Professional Bookkeepers.
- The certified public bookkeeper (CPB) license is offered through the National Association of Certified Public Bookkeepers.
To earn either certification, bookkeepers must successfully pass a four-part multiple-choice exam, verify their bookkeeping education and experience and agree to follow a professional code of conduct. Both CPB and CB credentials are widely acknowledged and valued nationwide.
Accountants must hold a bachelor's degree in accounting from an accredited college or university. Businesses looking for a higher level of mastery in accounting often hire a certified public accountant. CPAs are licensed, required to take continuing education and held to ethical and fiduciary standards. All these requirements typically make CPAs more expensive to hire than bookkeepers or non-CPA accountants.
To become a licensed CPA, candidates must pass the Uniform CPA Examination, which is administered by the American Institute of Certified Public Accountants (AICPA). While the CPA exam is the same for all candidates, requirements such as education and work experience may differ by jurisdiction. All 55 U.S. jurisdictions require either 120 or 150 credit hours to sit for the exam. Most jurisdictions require one year of relevant work experience to qualify for a license, though some require two or more.
In addition to a CPA, other specialized accounting-related roles include:
Enrolled agent: An enrolled agent (EA) assists taxpayers and businesses with IRS issues. To become an EA, a candidate must have worked for the IRS or passed an EA exam. They also must be authorized by the U.S. government. A college degree isn't required.
Financial auditor: A financial auditor may work in an internal or external role. Internal company auditors are not typically required to be CPAs but will usually have a relevant bachelor's degree. An external auditor typically works at a public accounting firm and is required to have a minimum of a bachelor's degree as well as a CPA license.
Forensic accountant: Forensic accountants specialize in detecting financial crimes. Their work is often used in court cases. Forensic accountants will usually have a CPA license in addition to a professional forensic accounting certification earned by passing the Certified in Financial Forensics exam or the Certified Fraud Examiners exam.
Advantages of a Bookkeeper
A bookkeeper's financial acumen and keen eye can provide a small business with a number of key advantages. They include:
Organization: Perhaps the greatest advantage of a bookkeeper to any business is organization. For instance, properly organized income and expense records make it easier for business owners and accountants to review resources and create a budget.
Attention to detail: A bookkeeper's accurately maintained records allow accountants to prepare tax returns that are less likely to have costly errors or omissions.
Lower cost: Bookkeepers typically charge lower fees for their services than accountants. The specific amount varies based on the amount of filing and documentation your business needs.
Advantages of an Accountant
Hiring an accountant will typically cost more than a hiring a bookkeeper, but there are advantages. Here are some of them.
Tax preparation and filing: At the very least, a small business should consider hiring a professional accountant to handle its tax returns. An experienced accountant helps to eliminate tax concerns by staying on top of compliance and ensuring that deadlines are met.
Strategic advice: An accountant can perform a thorough review of a business's accounts and give strategic advice to help a business get to the next level, including identifying revenue opportunities and potential cost savings.
Legal and regulatory compliance assistance: Accountants bring valuable expertise to the table and can help businesses deal with tax audits and navigate financial legal issues.
Similarities Between Accounting and Bookkeeping
Accounting and bookkeeping roles can seem similar because both work with financial data, require knowledge of accounting concepts and have a common goal of improving a business's financial situation. Additionally, a bookkeeper at a smaller company might perform duties that an accountant would perform at a larger company, such as preparing financial statements. The overlap of the roles continues to grow as accounting software lets companies automate processes, freeing up bookkeepers' time to analyze data and correct errors.
Where Bookkeeping Ends, Accounting Begins
Bookkeepers and accountants work closely together. Bookkeepers record and organize financial data, and accountants analyze that information to provide business owners with important insights and financial advice. This is all part of the accounting cycle — the process businesses use to record and analyze their financial data. The goal of this process is to produce an accurate account of a company's financial health. Some of these steps are performed by a bookkeeper, some by an accountant and increasingly some are automated by accounting software. The eight steps of the accounting cycle are:
Identify and categorize transactions.
Record journal entries.
Post journal entries in the general ledger.
Prepare an unadjusted trial balance.
Make adjusting journal entries.
Prepare an adjusted trial balance.
Prepare financial statements.
Close the books.
Typically, bookkeepers are tasked with identifying, recording and posting all transactions, as well as balancing the accounts, essentially steps one through four above. An accountant might be brought in at step five to post any adjusting entries — expenses that have occurred but aren't yet recorded in the bookkeeping process — then prepare financial statements and close the books. These roles can vary based on the experience of the bookkeeper, the size of the company and the accounting software used.
It's Time to Modernize Your Accounting Cycle
Bookkeeper Salary and Benefits
The rate paid for a bookkeeper should take into consideration education, certifications and years of experience. Bookkeepers are often paid on an hourly basis. Annual salaries based on a 40-hour workweek vary greatly in different regions of the country, starting in the low $20K range and increasing to the high $60K range, with a typical salary in the mid $40K range. Benefits for a bookkeeping role will be in line with other similarly situated employees.
Accountant Salary and Benefits
The annual salary for an accountant also factors in education, certifications and years of experience, but starts at a much higher number due to minimum requirements, knowledge and expectations. Hiring a CPA with experience at one of the Big 4 accounting firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) will require a higher salary than hiring someone with experience from a smaller practice. The Big 4 are reported to offer an average starting salary of $58.5K for audit associates just finishing their bachelor's degree, and $63K for starting tax associates. These large firms often provide relocation packages and signing bonuses, depending on the scarcity of candidates. However, these higher salaries often come with very demanding working hours.
Outside of the Big 4 firms, salaries for accountants vary greatly. For example, the annual salary for a corporate accountant in New York City ranges from $72K to $99K. A similar job in San Antonio, TX, might pay from $59K to $80K annually.
Control Your Bookkeeping and Accounting All in One Place
Whether a small or midsize business employs a full-time bookkeeper or hires an accountant only to prepare and file tax returns, accounting software can help simplify the entire accounting process. NetSuite cloud accounting software simplifies the processes of recording transactions, managing payables and receivables, collecting taxes and closing the books and enables timely, accurate reporting and greater control of financial assets. With secure real-time access to financial data, businesses can quickly drill into details to resolve issues and generate statements and disclosures to comply with multiple regulatory financial compliance requirements.
Bookkeeping and accounting are often thought of interchangeably. While similarities exist, it is important for small and midsize businesses to understand the differences between these two essential financial functions so they can choose the right level of services for their needs. Bookkeepers organize and accurately record all financial activity and don't require higher education or certification. Accountants analyze financial data and provide business owners with important insights and financial advice based on that information. CPAs must pass a rigorous four-part exam, are required to pursue continuing education and are held to ethical and fiduciary standards. Accountants tend to start with and maintain higher annual salaries than bookkeepers, but both roles can save a business owner time and money. Additionally, small businesses should evaluate accounting software to determine how it can automate certain parts of the accounting cycle.
Bookkeeping vs. Accounting FAQ
Can a bookkeeper become an accountant?
Yes, a bookkeeper can become an accountant, usually with experience and a bachelor's degree in accounting. But to be able to provide attestations or validate financial statements, a CPA license is required. To become a CPA, bookkeepers must meet all the education requirements and pass the Uniform CPA exam like any other candidate.
Do I need a CPA or a bookkeeper?
Bookkeepers and accountants both work with financial data, but their roles are different. Bookkeepers focus more on daily responsibilities, including recording financial transactions, invoicing and managing payroll. Accountants analyze financial data and provide financial advice and tax guidance.
Can accountants do bookkeeping?
Yes, accountants can perform the duties of a bookkeeper. However, accountants are usually paid more than bookkeepers, so having an accountant perform the more repetitive tasks of a bookkeeper might not be cost-effective.
What pays more, accounting or bookkeeping?
Accountants tend to start with higher annual salaries based on the more stringent requirements and expectations. Additionally, the career path of a bookkeeper is much more limited than that of a CPA, so a CPA's salary can grow much faster than a bookkeeper's.