Many owners use the words bookkeeper, accountant and CPA as if they mean the same thing. They do not. Knowing the difference helps you pay for the right help at the right time.
What a bookkeeper does
A bookkeeper keeps your financial records complete and accurate throughout the year. The work is regular and detailed:
- Recording and categorizing every transaction
- Reconciling bank, credit card and loan accounts
- Entering bills and invoices, and tracking who owes what
- Recording payroll correctly
- Producing monthly reports such as the profit and loss and balance sheet
Bookkeepers do not need a state license, though many hold software certifications or professional credentials.
What a CPA does
A CPA, or Certified Public Accountant, has passed the CPA exam and is licensed by a state board of accountancy. Only licensed CPAs and CPA firms can provide certain services, such as audits and reviews of financial statements. CPAs commonly:
- Prepare and file business and personal tax returns
- Give tax planning advice
- Represent you before the IRS
- Audit or review financial statements for lenders or investors
- Advise on business structure and larger financial decisions
A simple way to think about it
The bookkeeper keeps the records. The CPA uses those records to file taxes and give advice. If the records are incomplete, the CPA has to fix them first, often at a higher hourly rate.
| Bookkeeper | CPA | |
|---|---|---|
| Main focus | Accurate, current records | Taxes, advice and assurance |
| How often | Every month, sometimes every week | A few times a year for most small businesses |
| License | Not required | State CPA license required |
| Files tax returns | No | Yes |
| Gives tax advice | No | Yes |
| Typical cost | Lower, often a flat monthly fee | Higher, often hourly or per return |
Do you need both?
Most small businesses do. A bookkeeper keeps things right all year, and a CPA handles taxes and advice. Paying a CPA to do monthly bookkeeping usually costs more than it needs to, and skipping the bookkeeper often means a costly clean-up before your return can be filed.
Very small businesses with only a few transactions a month may manage their own books with good software, then hand everything to a CPA at year-end. As volume grows, that usually stops working.
How they work together
The best setup is a bookkeeper who keeps your books tax ready and a CPA who receives a clean, reconciled file at year-end. Many bookkeepers will send year-end reports straight to your CPA and answer their questions, so you do not have to sit in the middle.
The bottom line
Use a bookkeeper for the day to day records and a CPA for taxes, advice and any work that needs a license. Together they cost less and cause less stress than asking one to do the other's job.
Chudasama LLC provides bookkeeping, accounting and admin support. We are not a CPA firm, and we work alongside your CPA. See our year-end and tax-ready books service.