The Wonders Of Bookkeeping For Small Business

Bookkeeper vs. Accountant

When it comes to hiring help related to the financial aspects of your business, there are four primary types of service providers you can choose from:

  • Bookkeeper
  • CPA
  • Tax Preparer
  • Tax Accountant

All four have distinct roles and areas of expertise, and there are rules for each position. The purpose of this post is to help you understand the difference between them, and determine which ones you need to help you make the financial aspects of your business run smoothly.

Bookkeeper

A bookkeeper organizes the financial information for a business. For example, they enter income and expenses into an accounting system. They may also write checks and deposit money into a bank account.

In many cases, business owners are their own bookkeepers, or they may hire someone to handle bookkeeping for them.

Tax Preparer

A tax preparer’s only role is to prepare your taxes. They don’t know the ins and outs of the deeper parts of your business, but are trained to ask some basic questions to get the information they need from you to prepare your taxes. They then take the information you provide them, and put it in the proper place in your tax return.

CPA

A CPA has a higher level of knowledge than a bookkeeper or tax accountant, and they have a deeper level of understanding regarding what questions need to be asked regarding the financial aspects of your business.

For example, they may see that you have listed auto expenses, and may ask questions such as, “What’s included in auto expenses?” If your answer is, “gas and repairs,” they may suggest that you take a mileage deduction instead of your actual vehicle expenses.

A CPA will also talk you through different scenarios. For instance, if you’re a small business owner, they may ask questions such as, “Do you work from home?” If the answer is yes, then they can walk you through different deductions you may be eligible for related to having a home office.

A real advantage to having a CPA is that they know the types of questions to ask to help you maximize deductions.

Tax Accountant

Tax accountants are highly specialized in the tax field. They can help you maneuver higher end, more complicated situations such as selling a business. They can advise you in how to structure things and make investments in such a way to minimize your tax bill.

Different Rules and Expectations for Different Roles

One of the most important things to understand with each of these roles is that they have different areas of expertise, and in some cases, rules that determine what they can and cannot do.

For example, a bookkeeper can do a lot for a business, and it makes a lot of sense to give a pile of receipts to a bookkeeper to enter into an accounting system, rather than asking an accountant to handle that task; while accountants can handle that task, they charge more, so it’s more cost effective to hire a bookkeeper to do that type of task for you.

Things Your Bookkeeper Can’t Do for You

A good bookkeeper is worth their weight in gold. They can help you take control of your finances, they can keep you from making any grievous mistakes during tax season, and they can save you a LOT of time. Trying to run your business while also keeping up to date on your books and payroll can be a Herculean task: That’s why having a bookkeeper who can take that considerable burden off your hands is so helpful. But there are a few financial tasks and duties that your bookkeeper can’t help you with, and it’s important to know so you can make sure that you have the right people on hand to cover all your bases.

At Hacker Accounting our bookkeepers and accountants are ready and willing to help our clients stay on the right financial track. Here are three things that your bookkeeper can’t do for you (but that our accountants can!).

 IRS Representation

Your bookkeeper is qualified and able to handle a variety of different financial matters, but one of the biggest things that they can’t do is represent you before the IRS. Only CPAs, tax attorneys, and enrolled agents are able to represent you on your behalf before the IRS. This also means that a bookkeeper cannot sign tax returns or represent you during a tax audit.

Financial Strategy

Bookkeepers know that the devil is in the details. This is where they shine: Going through your finances and records with a fine-tooth comb.Bookkeepers are great for handling payroll and helping you keep track of your day to day expenses, profits, and losses. What bookkeepers often aren’t great at is seeing the future. That’s where an accountant comes in handy: Accountants gear their abilities towards helping their clients with financial planning and strategy. If you need someone to help you look to the future, talk to an accountant. If you need someone who will help you get your financial past and present under control, talk to a bookkeeper.

Keep in mind that we’re not saying that a bookkeeper can’t offer you financial advice and strategy. Bookkeepers can often be as savvy and knowledgeable about business as an accountant! It’s just that financial strategy isn’t their focus.

Audit Your Books

Your bookkeeper is a master when it comes to preparing your books. It’s their job to ensure that every single financial detail of your business is recorded and accounted for. What most of them won’t do, though, is audit your company’s books. That’s where an accountant comes into play. And frankly, that’s usually for the best: It’s always good to have an extra pair of eyes going over your records to make sure everything is in tip-top shape. The slightest error could lead to huge fines and fees come tax season, so it’s best that you make sure your books are exposed to as much scrutiny as possible to keep them 100% accurate.

What do bookkeepers do?

Here are some of the tasks of bookkeeper that will help to keep your business running smoothly:

  • Keeping track of daily transactions

A bookkeeper can handle the recording of day-to-day bank transactions. If the accounting software you use has daily automatic bank feeds, this is a great tool for your bookkeeper to use. When your bank statement lines are fed into your accounting software, it’s much easier to keep an eye on cashflow and it also saves on data entry time.

  • Sending out invoices and managing the accounts receivable ledger

Preparing invoices and sending them to clients is usually the bookkeeper’s responsibility. Managing the accounts receivable ledger – and chasing late payment– is also likely to be done by a bookkeeper.

  • Handling the accounts payable ledger

Up to a certain dollar amount, it’s usually bookkeepers who will make payments on behalf of the business. This includes payment of supplier invoices, expenses and petty cash.

  • Keeping an eye on cashflow

One of the most important tasks for a bookkeeper is making sure the company doesn’t run out of day-to-day money. They can do this by watching the balance of revenues to expenses. Then they can take action or offer advice if it looks like the company needs more ready cash.

  • Preparing the books for the accountant

It’s the bookkeeper’s job to ensure that the accounts are valid and up to date when the accountant needs them. This allows the accountant to use their skills and knowledge to make business recommendations, report to the board and complete company tax returns.

The main function of accounting

An accountant’s primary role is to help you make sense of your business’s finances. This includes analysing, summarising, interpreting and producing models and reports.

More specifically, an accountant is responsible for:

  • Preparing and adjusting entries. This includes recording expenses that have occurred but aren’t yet recorded in the bookkeeping process.
  • Preparation of financial statements. These may include quarterly or year-end documents, budgetary forecast activities, and so on, many of which have deadlines and tax implications that your accountant will ensure are met and complied with.
  • Analysing costs of operations. Helping to ensure you stick to your business budget, remain cash flow positive and achieve profitability.
  • Completing income tax returns. Complying with any and all government guidelines and standards, filing on time to avoid penalties and providing general tax advice.
  • Aiding the business owner in understanding the impact of financial decisions. From business operations to payroll software, which accounting method, accounting process and accounting principles you should adopt, to forecasting revenue trends and revenue expectations, your accountant will guide you on anything related to business spending and earnings and provide helpful and crucial advice for how to achieve your goals.

What’s the Difference Between a CPA and an Accountant?

It’s true that all Certified Public Accountants (CPA) are accountants. But not all accountants are CPAs.

While most accountants have a formal accounting education, it’s not required to work as one. To claim the title of Certified Public Accountant, however, they would need to:

  • Get a degree in accounting.
  • Work in public accounting.
  • Pass a rigorous test.

The CPA test is notoriously difficult. It’s broken into four separate tests, and the pass rate for making it through all four on the first try is low. It’s only after passing this exam that an accountant can claim to be a Certified Public Accountant.

When it comes to hiring accounting help, bringing in someone with a CPA certification means added credibility. You know that they’ve made it through a difficult process to achieve that title.

So if your books are complex and you need someone to help guide you through accounting, you might look for a CPA. If your books are simple but time-consuming, you could easily open up your search to other accounting professionals.