Unless you have the knowledge and the skills to keep track of your business financials, you should hire the services of a bookkeeper, an accountant, or both. Though a bookkeeper and an accountant fall under the same number crunching category, there is a difference in the duties performed, and in one way or another, it will pay off for you to know the difference. While some businesses employ one or the other, some businesses employ both. For the most part, the main differences between a bookkeeper and an accountant are the educational requirements and the skills required for each position. Following is a definition of both job titles and a general summary of each position.
Generally, a bookkeeper is a person who records the day to day financial transactions of a business, manages the chart of accounts and generates financial statements for a specified period. There are two classifications of bookkeepers, an entry level bookkeeper and a full charge bookkeeper. Full charge bookkeepers have more responsibilities than entry level bookkeepers, however, they have less responsibilities than an accountant. Generally, desired qualifications of a bookkeeper are usually having an Associate degree in Accounting or business administration or having equivalent business experience. In addition, the person hired for a bookkeeping position should have knowledge of bookkeeping and Generally Accepted Accounting Principles (GAAP).
As mentioned previously, the basic responsibility of a bookkeeper is to enter financial transactions of the business. The information can be entered weekly, bi-weekly, monthly, or whenever the business owner wants the information entered.
Some principal responsibilities of a bookkeeper are as follows;
• Maintain the chart of accounts.
Chart of Accounts: A listing of all accounts used in the general ledger. Accounting software aggregates information into an entity’s financial statements using the chart of accounts. The chart of accounts is usually sorted in order by account number to ease the task of locating specific accounts.
• Create and issue financial statements.
Financial statements are reports about the financial results, financial condition and cash flows of a business. Three commonly used financial statements are as follows;
1. Income Statement.
This is a financial statement that reports a company’s financial performance over a specific accounting period. How the business incurs its revenues and expenses through both operating and non-operating activities is how financial performance is assessed.
2. Balance sheet.
This is a statement indicating the financial position of a business, which shows the assets, liabilities, and owners’ equity at a specified period.
3. Cash Flow Statement.
This statement reports the sources and uses of cash by operating activities, investing activities, financing activities, and certain other supplemental information for the period specified in the heading of the statement.
• Manage accounts payable and receivable.
1. Pay company debt as it becomes due; and
2. Ensure that receivables are promptly collected.
There are other duties that a bookkeeper can perform. However, the overall job duties of a bookkeeper will depend upon the skill set of the bookkeeper and how much responsibility the business owner is willing to trust the bookkeeper with.
An accountant is a professional who is generally trained in all areas of the accounting arena (bookkeeping, financial statement preparation, tax computations, auditing, and analysis of accounts) just to name a few. The most common accounting designations are the Certified Public Accountant (CPA), the Certified Management Accountant (CMA) and the Certified Internal Auditor (CIA). Note that Certified Internal Auditors and Certified Management Accountants do not have to be licensed to practice. Accountants must abide by the ethical standards and guiding principals of the region where they practice, such as following the Generally Accepted Accounting Principles (GAAP) guidelines.
The entry level educational requirement for an accountant is a bachelor’s degree. In some situations, a master’s degree might be required. The preferred field of study is accounting, and for some positions, the CPA licensing credential is required.
Some principal responsibilities of an accountant are as follows;
• Analyze various accounting records.
Depending upon the area of accounting that the person works in, part of his or her job will be to analyze various accounting records. Accounts payable accountants may spend a good portion of their time analyzing money that is being spent on outside services and supplies. After analyzing this information, suggestions may be made to upper management to help the company cut costs, (reduce outgoing dollars). An accounts receivables accountant may spend a good portion of their time comparing various cash, checks, and credit card receipts to the accounts receivables (A/R) balance.
• Tax Computations.
Accountants who compute taxes for companies (Tax Accountants), focus mainly on the tax related matters of a company and generally record all assets of a company, including sales, then subtracts all liabilities, which includes general expenses, salaries, office rent and office supplies. Net income is the difference between assets and liabilities.
• Budget Development.
Some accountants are responsible for developing budgets for the company. However, before developing the budgets, input from various departments in the company is required. The department heads will typically calculate their own budget and then send the information to the accountant. Based on the budgets from the various departments, the accountant can determine where cuts need to be made in the company for the company to achieve its financial goals.
• Manage Employees.
Hiring and training bookkeepers and accounting clerks is often the job of the accountant. The accountant usually will delegate certain aspects of their job to the bookkeepers and the accounting clerks. Depending upon the type of bookkeeper (entry level or full-charge), or the type of accountant, job responsibilities for each position can range from few to many.
In closing, unless the accountant is willing to perform the daily mundane tasks of entering data, maintaining the chart of accounts, or playing debt collector (which most accountants frown upon), a word to the wise, if your business can afford it, hire both, a bookkeeper and an accountant. In a nutshell, accountants are qualified to handle the entire accounting process, while bookkeepers record and classify financial transactions, laying the groundwork for accountants to analyze the financial data.