Bookkeeper vs Accountant vs CPA - what are the differences and which one do you need?

As a business owner or entrepreneur, you’ve probably heard advice like “you need an accountant”, “get a bookkeeper” or “talk to a CPA”, but do you know what the differences are between these roles - or which one your business really needs? I’m a CPA that’s worked and worked with all three roles, so I can tell you firsthand what each professional does and help you decide which one is the right fit for you.

Let’s first start with what bookkeeping and accounting are. In the simplest terms, bookkeeping is the data entry process of recording financial transactions for a business. Accounting is bookkeeping plus the process of analyzing and reporting on that financial data. You may be able to perform simple bookkeeping yourself if you know enough about the process, but it’s always worthwhile to have a trained set of eyes reviewing it to ensure completeness and accuracy, as well as to implement advanced tax and financial strategies. 

What is a Bookkeeper?

A bookkeeper is someone who performs financial data entry for your business. They record the daily transactions that occur in your business bank account, categorizing them by income and expense type. Financial data can include invoices for your customers, bills from your vendors, cash receipts, cash payments and cash owed. They can also perform bank reconciliations and generate the two main financial statements every business needs- a Profit & Loss Statement (aka Income Statement) and a Balance Sheet.

Bookkeepers don’t always need a bachelor's degree, an associate’s degree, or even a high school diploma to be hired for basic bookkeeping services. They may understand the basics of debits and credits, but they usually don’t have industry-specific knowledge and usually don’t keep up with accounting standards. Without either of these, you could potentially be left with messy or unreliable books for your growing business which makes planning for the future difficult. This is where accountants and CPAs come in.

What is an Accountant?

An accountant is someone who can do bookkeeping work, but is also qualified to review those transactions entered in by bookkeepers. Accountants record non-cash transactions, analyze financial statements and track business owner contributions/distributions to ensure you’re capturing all possible tax deductions. They can also prepare reports, budgets, forecasts and tax returns. 

*Note - all accountants know how to file simple tax returns, but not every accountant files taxes! Just like there are many different fields a doctor can specialize in, there are many different fields an accountant can specialize in.

An accountant is someone who graduated from a 4-year college or university with a degree in Accounting. This is a big step up from a bookkeeper because they have learned how to process  your books to be in compliance with US GAAP, which is the standard of accounting in the US. Depending on their level of expertise, accountants can implement accounting systems and tax strategies to lower your tax bill, though this may be more up your CPA’s alley. 

All accountants can do bookkeeping, but not all bookkeepers are accountants. 

What is a CPA?

Accountants can have the additional qualification of being a Certified Public Accountant. CPAs are more like strategists than general accountants. They will help you plan and track your goals, offer advice on how to handle various accounting and tax situations and equip you with the knowledge and confidence to take big steps in your business. CPAs can do everything bookkeepers and accountants can do, but because of the deeper understanding of accounting standards and tax law, they’re the best choice for those needing specific strategy and advisory.

Becoming a CPA requires additional education, training and passing a rigorous 4-part, 16 hour exam to obtain a state-issued license. Along with all of the services mentioned above, this license qualifies CPAs to do additional work, like legally representing clients in front of the IRS and state tax jurisdictions, performing audits and reviews requiring signoff, providing opinions on public company financials, etc. CPAs are held to a higher standard and in a higher regard than both bookkeepers and accountants. There is an additional level of responsibility, credibility and trust, as well as a requirement for continuing education for as long as they keep that license active.

Similarly, all CPAs are accountants, but not all accountants are CPAs.

So, final thoughts?

If you’re looking for someone to do data entry so that you as the business owner don’t have to, then a bookkeeper is what you need. If you’re looking for someone to provide review and analysis, consider hiring an accountant. If you’re looking for someone to provide strategic support and advisory, then go with a CPA. If you think you need a bit from all three but don’t have the funds, go with a bookkeeper/CPA combo, or start with an accountant to cover your bases.

Luckily, you’re already in the right place. I’m a CPA that can provide you with a mix of services tailored specifically to your needs. Contact me when you’re ready to take the next step in optimizing your finances.