Bookkeeper vs Accountant – What Are the Core Differences?
Do you need an accountant or a bookkeeper – or do you actually need both? Small business owners have historically benefited from the services of both accounting professionals.
Organized finances are essential to your business’s success, preventing you from missing bills and failing to file documents on time. Likewise, having a financial professional to consult when you need one can save you from expensive issues.
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Bookkeeper vs Accountant?
Many business owners confuse the roles of these two accounting professionals. Both have a role in managing business finances yet their roles don’t overlap much. Some accounting tasks belong to bookkeepers, while others are reserved for accountants.
In simplest terms, your bookkeeper works on your ongoing financial transactions, entering new transactions in your books and ensuring daily tasks like receiving invoices and paying bills are completed on time.
Nowadays, artificial intelligence within cloud-based accounting software such as Envoice has replaced many of the bookkeeper’s routine tasks.
Accountants, on the other hand, analyze the information entered by the bookkeeper, providing you with financial reports and advice. Each is important in your business.
A more complete understanding of the role of each of these accounting professionals will help you determine which will be most helpful in your small business.
Here are the details of each role:
Role of the Bookkeeper
Bookkeepers are the backbone of your accounting system. The bookkeeper is responsible for recording the daily financial interactions of your business. All transactions, in and out, will be recorded, scheduled, or acted upon.
Small business owners can perform many of their accounting tasks without the services of a bookkeeper. You can certainly learn to perform these daily functions. However, the time spent on these tasks is time away from the main focus of your business.
Bookkeepers are responsible for a wide range of tasks. Some are daily responsibilities, while others occur monthly or annually. Bookkeepers ensure that each task is completed on time.
Here are some of the tasks normally undertaken by a bookkeeper in a small business:
Process Daily Financial Transactions
All daily transactions, in and out, are recorded in the general ledger. Invoices, receipts, income, and other financial transactions will generate entries that document where your money came from and where it is going. The timeliness and accuracy of these entries are paramount.
Bookkeepers process vendor invoices received electronically or by mail, locating essential information, verifying the validity of the charges, determining an appropriate due date, and presenting the information for approval. Vendor invoices tend to be challenging as each has a unique format, so the bookkeeper must find each piece of the necessary information.
Some purchases are paid for at the time of purchase. Those transactions also need to be recorded so that expense reports accurately reflect the actual expenses. Bookkeepers record those purchases in the general ledger as well, using the information on the receipt. The bookkeeper is responsible for determining how those entries are recorded to reflect the transaction most accurately.
Income is recorded as well, normally daily. The bookkeeper records a set of entries for cash, as shown in the deposit receipt. There are also entries for transactions on credit accounts. Those accounts receivable transactions will later be billed by the bookkeeper as well.
Process And Maintain Your Payroll System
Bookkeepers often maintain records of the number of hours worked by each employee, processing that payroll information, and creating paychecks. Bookkeepers ensure that all appropriate taxes are withheld. Bookkeepers also record these transactions in the general ledger.
Reconcile Accounts Payable And Accounts Receivable
Bookkeepers verify the accuracy of their entries by comparing the balances of individual entries to overall payments and receipts. Bookkeepers prepare and send invoices to customers who purchased on the account and pay vendor invoices received for items purchased.
Prepare Initial Financial Statements
Using the information recorded in accounts payable, accounts receivable, and the general ledger, bookkeepers prepare standardized financial reports like the balance sheet and income statement. Bookkeepers don’t analyze those reports, simply organize the collected information into readable formats.
Prepare Tax Statements
Bookkeepers record collections of payroll and sales taxes and prepare appropriate tax documents for all government levels. They are responsible for ensuring the documents meet government deadlines.
Other Financial Records
In some small businesses, the bookkeepers will also assist with other financial tasks. An example of these potential tasks is inventory management.
Education And Certifications
There is no formal educational requirement for bookkeepers. Most bookkeepers have some form of background or formal training in basic accounting skills. Excellent bookkeepers are organized, have good communications skills, are accurate and thorough, and pay attention to details.
While there is no licensing requirement dictating required education, bookkeepers often have studied accounting techniques. Bookkeepers can be CPB or CB certified, or in the UK AAT. Bookkeepers with additional certifications have demonstrated their knowledge of accounting principles.
While the hourly wage of bookkeepers varies from location to location, they are always substantially less expensive than an accountant. The best use of your funds up until recently was to have these bookkeeping functions performed by a bookkeeper.
However, with recent advances in artificial intelligence, many routine bookkeeping tasks can be performed faster and most accurately by cloud-based computer applications. Vendor invoices, for example, can be processed electronically at substantial cost savings. Learn more about this concept at Envoice – Manage your company’s invoices, expenses, & approvals online.
Role Of The Accountant
Accountants provide small business owners with financial insights about the information entered by bookkeepers. They oversee the financial records, ensuring accuracy and compliance with laws and regulations. Accountants rely on the accuracy of records, so oversee the procedures used by the bookkeeper.
Normally, accountants aren’t involved with the daily functioning of your small business. You will consult with your accountant several times a year when you need advice or assistance. An example of when you would consult with your accountant is tax season.
While bookkeeping is very transactional, working with each financial event as it occurs, accounting is analytical in nature. Accountants help small business owners understand their cash flow and realize how profitable they really are.
[Related Post: Controller vs. Accountant – What are the main differences?]
Here are the types of tasks normally performed by accountants:
Tasks Performed by Accountants
Accountants can help small business owners with most tasks that involve financial planning. Here are some examples of the specific tasks they perform:
Data Analysis and Financial Statements
The primary task of your accountant is to analyze your data. They identify key financial indicators that show how well your business is performing.
Accountants can give you a better understanding of your financial position. The information revealed in that analysis will be used to prepare financial statements.
One example of in-depth analysis that your accountant will perform is a yearly audit. The audit ensures that your books are accurate and timely.
Any issues with data collection or coding will be found.
Your accountant is available to consult with you on financial decisions. Accountants can offer insights into the benefits and hazards of financial strategies. They can also alert you of financial laws that affect your decisions. They can provide you with information that saves you from expensive errors.
Tax Advice and Filing
Your accountant will prepare your tax returns from the data provided in your ledgers. Accountants also provide tax strategies and planning. Accountants have experience and training in tax laws, so can provide money-saving advice.
Certifications and Licenses
Accounting requires a college education. Accountants have at least a bachelor’s degree or equivalent in accounting or finance. Many accountants have advanced degrees as well. Accountants working with taxes will have ongoing education on changes in the tax codes.
Accountants can also certify as Certified Public Accountants by passing the Uniform Certified Public Accountant test. Accountants certified as CPAs have devoted considerable time and effort to advanced financial training.
Accountants are normally paid a consulting fee at an hourly rate. Some accountants work on a retainer and are available for consultation as needed.
While the hourly rate for these consultations is substantially more than the hourly rate for a bookkeeper, accountants are used less frequently, so are a relatively small cost on a yearly basis.
In the past, small business owners often lacked resources to consult with experts. Maintaining an accountant on retainer was just cost-prohibitive.
With cloud-based accounting services such as Envoice, however, an on-demand accountant or financial advisor is often available as part of a monthly package.
Utilizing these services can help you with financial planning. They can help you avoid pitfalls, like missing important government licenses or tax deadlines. Develop the habit of checking with your professional advisors regularly.
[Related Post: How Much Does an Accountant Cost for a Small Business?]
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Ways To Use Artificial Intelligence To Automate Accounting Tasks
With a better understanding of the roles of accountants and bookkeepers, we can see that their roles combine to form effective financial management. Both contribute to the financial health of your business.
So, the question isn’t whether to hire a bookkeeper or an accountant. The real question is how to afford both.
A cost-effective solution to obtaining accurate and timely bookkeeping and accounting services while minimizing costs uses cloud-based accounting with AI analysis. Learn more at Envoice – Manage your company’s invoices, expenses, & approvals online.