Both accounting and bookkeeping play an important financial role in business, there is a difference between the two. Bookkeeping is a direct record of all purchases and sales your business conducts, while accounting is a subjective look at what that data means for your business and cash flow strategies. An accountant can be considered a bookkeeper, but a bookkeeper can’t be an accountant without proper certification.
Learn more about the differences between accounting and bookkeeping below.
Bookkeeping is a transactional and administrative role that handles the day-to-day tasks of recording financial transactions, including purchases, receipts, sales and payments. Accounting is more subjective, providing business owners with financial insights based on information gleaned from their bookkeeping data.
“Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor in the University of Wisconsin-Whitewater Department of Accounting. “Accounting is designed to turn data into information.”
Bookkeeping, in the traditional sense, has been around as long as there has been commerce ― since around 2600 B.C. A bookkeeper’s job is to maintain complete records of all money that has come into and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way. Their records enable accountants to do their jobs.
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These are some typical bookkeeping tasks:
One of a bookkeeper’s primary duties is maintaining a general ledger, which is a document that records the amounts from sales and expense receipts. Ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks and Xero, to track their entries, debits and credits. [Read our review of QuickBooks and our Xero review to learn more about these tools.]
Each sale and purchase your business conducts must be recorded in the ledger and some items will need documentation. You can find more information on which transactions require supporting documents on the IRS website.
There are no formal educational requirements to become a bookkeeper, but they must be knowledgeable about financial topics and accounting terms and strive for accuracy. Generally, an accountant or owner oversees a bookkeeper’s work. A bookkeeper is not an accountant, nor should they be considered an accountant.
Bookkeepers aren’t required to be certified to handle the books for their customers or employer but licensing is available. Both the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) offer accreditation and licensing to bookkeepers.
AIPB certification requires bookkeepers to have at least two years of full-time work experience and pass a national exam. To maintain the credential, bookkeepers are required to engage in continuing education.
The NACPB offers credentials to bookkeepers who pass tests for small business accounting, small business financial management, bookkeeping and payroll. It also offers a payroll certification, which requires additional education.
To earn the certified public bookkeeper license, bookkeepers must have 2,000 hours of work experience, pass an exam and sign a code of conduct. They must take 24 hours of continuing education each year to maintain their license.
A bookkeeper with professional certification shows they are committed to the trade, possess the skills and expertise required and are willing to continue learning new methods and techniques.
The salary or rates you’ll pay a bookkeeper depend on your business and its bookkeeping needs. Three main factors affect your costs: the services you want, the expertise you need and your local market.
There are several advantages to hiring a bookkeeper to file and document your business’s financial records. Here are a few to consider:
An accountant analyzes the financial data a bookkeeper records and provides business owners with important business insights and financial advice based on that information. These are some typical accountancy tasks:
“Accountants look at the big picture,” explains John A. Tracy in his book Accounting for Dummies. “[They] step back and say, ‘We handle a lot of rebates, we handle a lot of coupons. How should we record these transactions? Do I record just the net amount of the sale, or do I record the gross sale amount, too?’ Once the accountant decides how to handle these transactions, the bookkeeper carries them out.”
The accounting process produces reports that bring key aspects of your business’s finances together to give you a complete picture of where your finances stand, what they mean, what you can and should do about them, and where you can expect to take your business in the near future.
There is a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you if you get audited by the IRS.
Generally, accountants must have a degree in accounting or finance to earn the title. Then, they may pursue additional certifications, such as the CPA. Accountants may also hold the position of bookkeeper.
However, if your accountant does your bookkeeping, you may be paying more than you should for this service as you would generally pay more per hour for an accountant than a bookkeeper.
Accountants’ qualifications depend on their experience, licenses and certifications. To become an accountant, they must earn a bachelor’s degree from an accredited college or university.
There are several types of accounting certifications that accountants obtain to expand their skill sets and gain positions within larger organizations. In addition to CPA credentials, other common accounting designations are chartered financial analyst (CFA) and certified internal auditor (CIA).
A CPA is an accountant who has met their state’s requirements and passed the Uniform CPA Exam. They must also meet ongoing education requirements to maintain their accreditation.
When interviewing for a CPA, look for an accountant who understands tax law and accounting software and has good communication skills. They should understand your industry and the unique needs and requirements of small businesses.
Awarded by the CFA Institute, the CFA certification is one of the most respected designations in accounting. In this program, accountants learn about portfolio management, ethical financial practices, investment analysis and global markets. To complete the program, accountants must have four years of relevant work experience.
CFAs must also pass a challenging three-part exam that had a pass rate of only 39 percent in September 2021. The point here is that hiring a CFA means bringing highly advanced accounting knowledge to your business.
A CIA is an accountant who has been certified in conducting internal audits. To receive this certification, an accountant must pass the required exams and have two years of professional experience.
CPAs can perform some of the same services as CIAs. However, you might hire a CIA if you want a more specialized focus on financial risk assessment and security monitoring processes.
According to the BLS, the median salary for an accountant in 2021 was $77,250 per year or $37.14 per hour. However, their years of experience, your state and the complexity of your accounting needs affect the price.
Accountants will either quote a client a fixed price for a specific service or charge a general hourly rate. Basic services could cost as little as $20 an hour while advanced services could be $100 or more an hour.
Hiring a small business accountant yields significant benefits. Here are some advantages to hiring an accountant over a bookkeeper:
Your business’s accounting needs might not require the in-depth expertise of a hired professional. You might also be watching your company’s list of expenses and wondering where to reduce spending. In either case, consider handling the accounting yourself or delegating this responsibility to one or a few of your current employees.
Accounting software allows you and your team to track and manage your business’s expense reports, invoices, inventory and payroll accurately and efficiently. To choose accounting software, start by considering your budget and the extent of your business’s accounting needs.
Many accounting programs have free versions that cover basics such as tracking income or generating financial reports. Wave Financial, for example, offers most of its services for free and allows an unlimited number of users to collaborate on financial projects. [Read our Wave Financial review for more information.]
Other programs charge annual or monthly fees and offer advanced features such as recurring invoices or purchase orders. While these services come at a cost, they can maximize the accuracy and efficiency of vital financial management processes.
It can be difficult to gauge the appropriate time to hire an accounting professional or bookkeeper ― or to determine if you need one at all. While many small businesses hire an accountant as a consultant, you have several options for handling financial tasks.
For example, some small business owners do their own bookkeeping on software their accountant recommends or uses, providing it to the accountant on a weekly, monthly or quarterly basis for action. Other small businesses hire a bookkeeper or employ a small accounting department with data entry clerks reporting to the bookkeeper.
When looking for a certified bookkeeper, first decide if you want to hire an independent consultant, a firm or a full-time employee if your business is large enough. Ask for referrals from friends, colleagues or your local chamber of commerce or search online social networks like LinkedIn for bookkeepers.
You can also look at the American Institute of Certified Public Accountants to find CPAs with skills in certain areas, such as employee benefits or personal finance.
It may take some background research to find a suitable bookkeeper because, unlike accountants, they are not required to hold a professional certification. A strong endorsement from a trusted colleague or years of experience are important factors when hiring a bookkeeper.
Are you still not sure if you need to hire someone to help with your books? Here are three instances that indicate it’s time to hire a financial professional:
Whether you hire an accountant, a bookkeeper or both, ensure they’re qualified by asking for client references, checking for certifications or performing screening tests.
Accountants and bookkeepers both can offer valuable insight into your business’s financial situation, helping you make better decisions around cash flow and stay prepared when it comes to tax liabilities. For small businesses, adept cash management is a critical aspect of survival and growth, so it’s wise to work with a financial professional from the start. If you prefer to go it alone, consider starting out with accounting software and keeping your books meticulously up to date. That way, should you need to hire a professional down the line, they will have visibility into the complete financial history of your business.
Tejas Vemparala and Shayna Waltower also contributed to this article. Some source interviews were conducted for a previous version of this article.