Table of Contents
Introduction
If you’ve ever used the terms CPAs, Accountants, and Bookkeepers interchangeably, you will understand the significance of this topic. If truth be told, a majority of business owners and business leaders struggle to differentiate among the three. Pretty good evidence is how frequently they ask, “Do we need to hire all three, or just an accountant will suffice?”
So, discussing Bookkeepers, Accountants, and CPAs in detail is only fair. After all, all three professions are integral to every organization’s financial teams. Each of those professions performs several tasks associated with the financial operation of the businesses and helps them keep track of their financial data and reports in an organized and compliant manner. If you can understand the difference between the three professions, you can identify the position your business needs.
As your business grows, you will interact with more vendors, employees, and customers. Keeping track of your finances is a tad challenging, and not knowing the difference between an accountant, a bookkeeper, and a CPA can make it even trickier. Thus, let us go through each of those professions in detail, understand their definition, and what role they can play for your business. While there can be inevitable overlap in duties of all three roles, there are distinct differences, which will help you when you are hiring one for your business or when you try to outsource your financial operation to a trusted outsourced accounting service provider.
Bookkeeping
What is Bookkeeping?
Bookkeeping is an administrative and transactional role that records day-to-day financial transactions such as receipts, purchases, sales, payroll, and payments. This role is responsible for presenting an accurate picture of the business’s financial health and consequently allowing them to make informed decisions. Without a proficient bookkeeper or a bookkeeping service provider, it will be difficult for the company to keep track of its cash flow, establish profitability, or even maintain an accurate way of their financial performance.
Introduction of a Bookkeeper - The Tasks and Responsibilities
As mentioned above, bookkeeping is an administrative and transactional task. Thus the role of a bookkeeper can vary greatly depending on the nature of the business. From the outside, the role of a bookkeeper is to ensure that the bills are paid on time, payroll is processed on time, taxes are computed and filed accurately, and, most importantly, all the transactions are recorded at all times.
A daily workday for the bookkeepers will have them execute and record several financial transactions, update the general ledger for them, and prepare trial balances for inspection by accountants. They are responsible for maintaining and filing the required documents for the organization’s taxation and compliance. They also overlook the cash flow, generate financial reports, and help business leaders make strategic business decisions. So, from the organization’s payroll processing to tax computation and filing, you have a bookkeeper to thank.
Accounting
What is Accounting?
Accounting, on a broad level, is the process of tracking and recording finances by an individual or an organization. The process involves identifying, recording, measuring, and communicating the financial information across the organization to all the stakeholders, such as owners, business investors, regulators, and even creditors. The primary aim of accounting as a function is to present a transparent and relatively accurate picture of the financial health and performance of the organization.
Introduction of an Accountant – The Tasks and Responsibilities
An accountant is an individual who executes the tasks within the accounting function. The individual is laden with a plethora of financial tasks and responsibilities associated with the organization or individual clients. The role of an accountant can be defined based on the tasks and responsibilities that they have been tasked with; for example, an individual who prepares a financial statement for the external auditors or stakeholders is termed a financial accountant, while the one focusing on providing financial information to business leaders helping them with business-related decision-making is called a managerial accountant.
However, on the whole, the tasks and responsibilities of an accountant involve bookkeeping, which requires them to record financial transactions; financial analysis, which requires them to use financial data for identifying trends, making forecasts, assessing risks, Etc. Accountants also deal with compliance, ensuring that proper accounting standards and regulations are met within the organization or for individual clients and that the necessary financial information is being communicated on a regular basis to all the stakeholders through reports, data analysis, and other means.
Tax Preparation
What is Tax Preparation?
Whether you are an individual or an organization, Tax Preparation is something you must be very familiar with. Tax preparation is the process of preparing tax returns, mostly income tax returns, either for an organization or a person. Tax preparation for an individual is done mainly by the tax payer using government-authorized tax preparation software or services. However, for an organization, tax preparation is done through a licensed professional accountant or a tax filing partner. Individuals who prepare and file taxes for their clients or partners are referred to as a tax preparers in the accounting world.
Introduction of a Tax Preparer – The Tasks & Responsibilities
Tax preparers are responsible for compiling income tax details and filing tax forms on behalf of their clients. A tax preparer possesses a sufficient understanding of tax law, which allows them to review personal information such as Social Security numbers, personal and business expenses, and income statements for their clients and establish the circumstances and costs that can result in tax credits.
Credentialed tax preparers include:
- Certified Public Accounts (CPAs)
- Enrolled Agents (EAs)
- Tax Attorneys
Non-credentialed tax preparers include:
- Volunteer Income Tax Assistance (VITA) Volunteers
- Seasonal tax store employees
- Tax accountants (not Certified by the American Institute of CPAs (AICPA))
- Annual Filing Season Program participant
Differences between Bookkeeping vs. Accounting and Tax Preparation
While Bookkeeping, Accounting, and Tax Preparation come under the umbrella of managing the financial function of a business, they have significantly defined their objectives and responsibilities. Below are the critical differentiators for all three – bookkeeping, accounting, and tax preparation:
Bookkeeping:
Bookkeeping as a process and bookkeeper as a profession deal with recording financial transactions like purchases, sales, and payment receipts regularly. A bookkeeper’s primary responsibility is to ensure that all the financial records for their clients and organizations are up-to-date and accurate, that the financial statements and reports are prepared on time, and provide the necessary insights for business decision-making. Bookkeepers are responsible for updating and maintaining accurate records of the financial transactions for the organizations, making them easy to analyze and to be understood.
Accounting:
Accounting deals with the analytical side of financial operations and involves a lot of data interpretation and analysis for making informed decisions. The primary goal of accounting is to give insight into the financial health of the business through reports, financial statements, and forecasts, which the business owners, decision-makers, and other stakeholders can further use.
Tax Preparation:
As described above, Tax preparation is about filing and preparing tax returns for businesses and individuals. The tax preparers’ primary responsibility is to ensure that all the tax preparers, you must ensure that all tax obligations are met, filed accurately, and on time. As a tax preparer, you are expected to be well versed with the local and international tax laws and regulations which apply to your clients or organization and make the necessary suggestion on tax planning strategies.
Conclusion
In summary, bookkeeping, accounting, and tax preparation are all integral to any organization’s financial function. Individual’s part of these processes helps their clients or organization interpret financial data in such a way that it helps them make informed decisions towards the growth of the businesses. All three functions hold equal importance for any business and thus must work in coherence with each other. If you struggle to strike a balance between the three, our finance experts can help you attain that in just a few clicks. Write to us at: [email protected], and we will help you get started.
