CPA VS Accountant: Which Do You Need For Your Business?
Finances are the lifeblood of your business. so choosing the right professional to handle your finances is the key to success.
When it comes to accounting, terms like bookkeeper, accountant, and CPA are often thrown around interchangeably. But each finance professional is distinct and offers different roles and advantages.
In this post, we’ll explain the difference between CPAs, accountants, and bookkeepers so you can choose which is right for your business.
Table of Contents
The Basics
There are multiple types of accounting and tax professionals including bookkeepers, accountants, CPAs, and enrolled agents. Let’s start by explaining what each professional is and what they can do for your business.
What Is A Bookkeeper?
A bookkeeper is an individual who is in charge of maintaining a business’s books. A bookkeeper handles the day-to-day finances of a business.
A bookkeeper’s role can include:
- Entering data
- Sending invoices and recording payments
- Reconciling accounts
- Managing accounts payable
- Managing accounts receivable
- Making payments on the business’s behalf
- Creating reports
- Running payroll
- Managing payroll and state taxes
While small businesses can hire a professional bookkeeper, this role often falls on the business owner or another staff member for small businesses just starting out. However, outsourcing daily bookkeeping tasks can give you peace of mind and more time to run other aspects of your business.
What Is An Accountant?
An accountant is a professional who offers financial advice to businesses. A bookkeeper enters data and creates reports, but an accountant analyzes those reports and turns the data into an actionable, long-term business plan to help you succeed. Accountants generally have a bachelor’s degree.
The role of an accountant can include:
- Basic bookkeeping tasks
- Verifying the work of your bookkeeper
- Initial creation of your business
- Incorporating your business
- Creating reports and analyzing business financials
- Cash flow management and projections
- Business planning advice
- Tax planning advice
- Filing tax returns
While accountants can perform basic bookkeeping tasks, this is not always the best use of your company’s funds as accountants charge more than bookkeepers. Instead, accountants are ideal for when you need business or tax advice.
What Is A Certified Public Accountant?
CPA stands for certified public accountant. A certified public accountant (CPA) is a professional accountant who has more credibility and expertise than a regular accountant.
While the CPA qualifications vary slightly by state, all CPAs must have a bachelor’s degree and have passed the CPA certification exam. After passing the exam, CPAs must meet yearly education requirements to maintain their licenses, meaning they are often more informed on the latest tax laws and practices.
Like general accountants, CPAs are in the business of offering financial advice. CPAs are often viewed as more trustworthy since they have to undergo stringent requirements to obtain and maintain their license.
In addition to the roles of a regular accountant, a CPA:
- Can legally represent you and your business before the IRS
- Creates audit reports
- Creates review reports
- Has advanced tax knowledge and support
- Adheres to a strict code of ethics
Because CPAs have to go through a strict licensing process and follow a code of ethics, many businesses prefer working with a CPA. The title of CPA was created by the American Institute of Certified Public Accountants (AICPA) to create a standard for accountants to help business owners (and the IRS) feel more confident about an accountant’s work and ethics.
What About Professional Tax Preparers?
A tax preparer, or enrolled agent (EA), is a professional who prepares individual and business tax returns. Their expertise resolves solely around taxes.
Like CPAs, EAs are able to legally represent taxpayers before the IRS. They also have to undergo rigorous education and a certification exam and are licensed by the federal government rather than individual states.
The role of an enrolled agent includes:
- Filing tax returns
- Preparing out-of-state returns
- Strong knowledge of tax laws
- Legally representing you and your business before the IRS
- Resolving IRS disputes
- Working out payment plans when you owe the IRS on your tax return
While an EA can be incredibly helpful for taxes, only a professional accountant is equipped to handle accounting and give overall business finance advice.
Bookkeeping VS Accounting
| Bookkeeper | Accountant |
|---|---|
Handles the day-to-day financials of a business | Offers advice and insight about the big picture finances of a business |
Compiles reports and business data | Analyzes reports and business data in order to offer actionable advice |
Often has real-world experience, and sometimes a certification, instead of a degree | Generally has a bachelor's degree, preferably in accounting |
Can assist with payroll and sales taxes, but does not file tax returns | Files business and personal tax returns |
Has knowledge of the business's finances only | Has knowledge of the business's finances and client's personal finances |
The main difference between a bookkeeper and an accountant is that a bookkeeper manages the day-to-day finances of a business, while an accountant offers advice on the overall finances of the business.
The goal of bookkeeping is to maintain accurate records and balance the books. The goal of accounting is to gain an understanding of your business’s financial state and use that information to help your business succeed and plan for the future.
So, a bookkeeper will enter data, manage sales and payments, run payroll, run reports, reconcile accounts, and handle the “busy work” of finances if you will, while an accountant will help you understand what those reports mean about your business, how to improve your cash flow, how to handle your taxes, and how to reach your future business goals.
Additionally, a bookkeeper can’t file your taxes, whereas an accountant can file your personal and business tax returns.
CPA VS Accountant
| Certified Public Accountant (CPA) | Accountant |
|---|---|
Must have a Bachelor's and have successfully passed the CPA certification exam | Generally has a bachelor's degree, preferably in accounting |
Offers advice and insight about the big picture finances of a business, and can often offer deeper knowledge of tax codes | Offers advice and insight about the big picture finances of a business |
Can create audit reports and review reports | Can only create compilation reports |
Can legally represent a client | Cannot legally represent a client |
All CPAs are accountants, but not all accountants are CPAs.
Both CPAs and accountants can offer business advice, analyze reports and finances, manage cash flow, and file tax returns. But only a CPA can represent your company legally before the IRS and create audit reports and review reports.
The other main difference is the level of education a CPA must achieve in order to gain their certification and maintain their license. Because of this, CPAs are often perceived as more trustworthy and more knowledgeable than general accountants.
Types of Specialized Accountants
In addition to general accountants and CPAs, there are also specialized accountants. Specialized accountants are experts in a specific area or industry and often have additional certifications to qualify them for their job.
Here are the main specialized accountants you should know about and when you may require their services.
Forensic Accountant
Forensic accountants are accounting detectives who analyze the books in order to check for errors, oversights, compliance issues, or fraud. Forensic accountants are the professionals you call when you suspect someone of tampering with the books, and it’s their job to track down discrepancies and pinpoint fraud.
Most forensic accountants become a CPA as well as a CFE (certified fraud examiner).
Management Accountant
Management accountants, or corporate accountants, help corporations and business owners make important business decisions. Their job is to understand a company’s financial health and how new business plans or changes will affect the bottom line. These types of accountants specialize in planning, budgeting, risk management, and business strategy.
Most management accountants become a CMA (certified management accountant).
Cost Accountant
Cost accountants are money experts who analyze exactly where a businesses money is going and how costs could be improved. Cost accountants are ideal for businesses needing extra guidance and insight into their expenses, labor costs, production costs, cash flow, etc. These types of accountants specialize in cost analysis, profitability, and budgeting.
Most cost accountants become a CPA as well as a CCA (certified cost accountant).
Project Accountant
Project accountants are hired on a by-project basis to take the helm on specific business projects. These types of accountants oversee and manage projects for business owners, and their job includes tasks like invoicing, approving expenses, verifying employee hours, maintaining budgets, and meeting deadlines to ensure the project is done and done well. Project accountants specialize in job costing, management, and communication as they often have to work closely with project managers.
Most project accountants become a CPA as well as a CMA (certified management accountant).
Which Type Of Accounting Professional Do You Need?
Now that we’ve covered the basic types of accounting professionals, how do you know which type of accountant you need? Is a bookkeeper best? An actual accountant? A CPA? Or a specialized accountant?
The answer is going to depend on your businesses needs.
Do you need help managing the day-to-day bookkeeping processes of your business? Hand the reigns to a professional bookkeeper to free up your time so you can focus on running your business and rest assured that your finances are in good hands.
Do you need financial advice regarding your business? A professional accountant or CPA will be able to analyze your business finances and offer business advice.
Do you need to prepare your taxes? A bookkeeper can help you manage your payroll taxes, sales taxes, and compile 1099s, but only an accountant, CPA, or EA can file your tax returns for you. A CPA and EA will have the most knowledge of the tax laws and both can represent you and your business before the IRS in the case of an audit. Choose a CPA if you want business and accounting advice in addition to tax support.
Do you require specialized accounting? If you need extra insight regarding business strategy, management accounting is the way to go. If you require advanced cost analysis, consider a cost accountant. If you are starting up a new project and want added insight and management, a project accountant can help.
Are you worried an employee is stealing from you? A forensic accountant will be able to get to the bottom of the issue and spot any potential fraud.
Are you a private or public corporation? If you are a public corporation, the answer is already made for you. Public corporations must provide audit reports to investors, and only CPAs are qualified to create these reports.
Analyzing your businesses needs is the best way to determine which type of accounting professional you need. When debating between a bookkeeper vs accountant vs CPA, ask yourself:
- Do I want data or analysis?
- Do I need help managing my finances or advice managing my business?
- Do I need tax support?
- How important is legal representation to me?
- What level of expertise and licensing am I comfortable with?
These factors can help you determine if a bookkeeper, accountant, or CPA is right for your business.
When making your decision, also realize that you are not tied down to a single type of accountant. Many businesses need a bookkeeper and an accountant. The bookkeeper can handle the day-to-day tasks at a more affordable rate and you can call in the big guns when you need professional business advice.
Final Thoughts
Bookkeepers, accountants, and CPAs all have their strengths.
Bookkeepers are ideal for managing your daily business finances, back-office financial tasks, and data entry. Accountants are ideal for business advice and tax preparation. And CPAs offer added expertise, credibility, and in addition to traditional accounting tasks, they can represent the best interest of you and your business in a legal scenario.
Knowing the differences between all three can help you determine which type, or types, is right for your business.
Chelsea Krause
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