Bookkeepers and accountants do different things. Bookkeepers reconcile your accounts each month and file your B&O taxes, while an accountant serves as your tax preparer.
Fortunately, some CPA audit firms like ours offer the services of both bookkeepers and accountants if you need them, as well as other financial professionals, including CPAs, IRS Enrolled Agents, and auditors.
Let’s look at the differences below.
The Five Accounting Roles at a Glance
What a Bookkeeper Does
Bookkeepers record all of your daily financial transactions. They reconcile your bank, credit card and loan accounts each month and close your books. At tax time, they make sure your books are clean and up-to-date before handing them off to your tax preparer. Our bookkeepers help you stay organized all year and audit-ready.
Bookkeepers can even scan your receipts, checks and invoices, and categorize your expenses for you. And if you’re a business in Washington required to file B&O taxes, bookkeepers can help you with that, too, whether you file monthly, quarterly or annually.
What an Accountant Does, and How They’re Different than Bookkeepers
Accountants review and interpret what your bookkeeper records. They’re the ones you turn to if someone requests audited financials, and they can help you determine if you actually need audited financials, or if a less expensive compilation or review would be sufficient.
Financial Accounting vs Tax Accounting
Financial accounting and tax accounting serve very different purposes. Most financial accounting is designed to show investors, lenders, regulators and other stakeholders how healthy your business is financially.
This can include preparing a financial statement audit, single audit, Yellow Book audit, HOA audit or other types of financial documents.
Tax accounting isn’t used to show your financial statements to anyone. Its sole purpose is to comply with local, state or federal regulators (like the IRS) that require you to document income and/or sales and pay taxes due.
What’s the Difference between an Accountant and a CPA?
Every CPA is an accountant, but accountants can’t call themselves CPA’s unless they have met certain licensing requirements, including passing the CPA exam.
An accountant can’t provide an opinion on your audited financials, but a CPA can. CPAs can sign attestations, meaning they can review the financial documents for your business and provide an objective opinion on the financial state of your company.
To obtain a CPA license, accountants need:
- 150 college credits
- A Bachelor’s degree
- 1-2 years of experience working under the supervision of a licensed CPA
- To pass the CPA exam, which includes sections on auditing and attestation, financial accounting and reporting, taxation and regulation
- To pass a state-specific ethics exam, if required by their state
Do You Need a CPA, or Will an Accountant Do?
You may need a CPA if an investor, regulator or lender asks you for audited financials (also called a financial statement audit). An accountant can’t provide the objective opinion you need for that. Only a CPA can sign the attestation required in financial statement audits, Yellow Book audits, single audits and HOA audits.
Enrolled Agent vs CPA for your taxes
Enrolled Agents (EAs) are specifically authorized by the IRS to communicate with the IRS on your behalf, as your representative. If you have to go through an IRS audit of your tax returns, or are negotiating with them regarding back taxes due or appealing an IRS decision, an Enrolled Agent can be a huge help.
An EA (Enrolled Agent) can do a lot of what CPAs do, but if you don’t absolutely have to have a CPA, working with an Enrolled Agent instead can save you a lot of money.
If you just need someone for income tax preparation, a tax preparer can help you. But proactive tax planning for future years requires a tax advisor that can help you plan large purchases, optimize investment timing and take all the best deductions.
What an Auditor Does
An auditor with a CPA license can provide audit and assurance services This requires reviewing your books and providing an objective, third-party opinion on them. They look at whether you have good processes in place to prevent and/or detect fraud quickly, and whether you actually follow those processes consistently.
They can also identify any weaknesses in your process, and after completing your financial statement audit, advise you on how to resolve any issues, especially if you are required to submit audited financials to regulators each year.
Bookkeepers record your financial transactions. Auditors review the bookkeeper’s work. Bookkeepers can’t audit their own work and provide an objective review.
Which One Do You Need? Bookkeeper, Accountant, CPA, Enrolled Agent or Tax Preparer?
Truly, each one can play a role. Your bookkeeper handles all of your day-to-day financial transactions, monthly reconciliations and closing, B&O taxes (if required) and cleans up and organizes your books before handing them off to a CPA to prepare audited financials or prepare your annual income tax return.
Accountants can help you with strategy and planning and prepare your taxes for you.
Enrolled Agents (EAs) specialize in helping you with IRS/tax issues, and can also prepare your taxes returns. They can do most of what a CPA does, and often at a much lower cost.
A CPA can help you with complex IRS issues and certain processes that require a CPA license. They can also prepare your tax return, but may charge more than other tax preparers for tax prep.
If You Represent an HOA Board
Your bookkeeper can’t audit your HOA books. If you need an HOA audit, an independent CPA audit firm has to complete it for you. HOA audits require someone objective who works outside of your HOA, not the person who has recorded the dues and paid the vendors.
Bookkeepers prepare the association’s books for your CPA, who then reviews them as part of the audit, along with your most recent HOA reserve study, if you have one. They then deliver an opinion based on that review.
Bookkeeper vs Accountant Frequently Asked Questions
Is a Bookkeeper the Same as an Accountant?
No. Bookkeepers are not the same as accountants. Bookkeepers handle things like accounts payable, accounts receivable, payroll and sales taxes. They also reconcile accounts each month and close the books at the end of the month. Bookkeepers don’t usually need a license to do this type of work. And they don’t prepare your tax return or represent you in IRS issues.
Accountants provide specialized advice to guide your business. They don’t record your daily financial transactions the way bookkeepers do. Accountants don’t have to have a license, either, although they often have obtained formal degrees in accounting. Accountants can serve as tax preparers.
What Is the Difference Between a CPA and an Accountant?
An accountant doesn’t have to be licensed, but they usually have a formal degree. A CPA is licensed with the state(s). They have passed the CPA exam, and can represent you before the IRS. CPAs can also provide an objective opinion as part of your audited financials.
Can an Enrolled Agent Do Everything a CPA Can for My Taxes?
An Enrolled Agent (EA) can do just about everything a CPA can do when it comes to taxes. They are federally licensed by the IRS, and considered experts in federal tax law. They can also represent you before the IRS to deal with issues regarding back taxes, payment arrangements and settlements, if needed. Having an EA prepare your taxes instead of a CPA can save you a lot of money. CPAs almost always cost more than EAs.
CPAs are licensed by individual states. They can also prepare your taxes and represent you before the IRS, but where EAs are specialized in federal taxes, CPAs have a broader level of financial expertise. You may be referred to a CPA if you have a particularly complex situation regarding state taxes or need more long-range planning for your business.
Do I Need a CPA to Get Audited?
You need a CPA to help you if a lender, regulator or investor requests a financial statement audit (audited financials.) An accountant can work on your audit, but it has to be reviewed and signed by a CPA. The CPA provides the independent opinion on your audited financials.
If you get audited by the IRS and need someone to represent you, an Enrolled Agent (EA) can help. A CPA can represent you, too, but EAs are experts in federal tax law. They often charge less than CPAs.
Which One Do You Need, a Bookkeeper or an Accountant?
You need a bookkeeper to record your financial transactions and reconcile them. You may need an accountant to prepare your tax returns.
All CPAs are accountants, but not all accountants are CPAs. CPAs have additional licensing that allows them to provide the objective opinion on your audited financials.
Everything else can be completed by accountants, who serve as tax preparers, and EAs, who can represent you before the IRS. CPAs can prepare taxes, but in most cases, you don’t need a CPA to do your taxes.
CPA fees are often the most expensive, due to their broad financial knowledge and licensing requirements. At Clarity, we won’t refer you for Bellingham CPA services if another member of our team can provide the services you need.
Request a FREE quote for more information on our bookkeeping and accounting services. Meetings can be conducted via phone, video, or in-person at our Bellingham, Washington office.