What is Form 4868? What You Need to Know
Instead of filing your taxes late, you have the option of filing IRS Form 4868.
In common parlance, the terms “bookkeeping” and “accounting” are frequently used interchangeably. They both refer to practices relating to finances, and in most cases specifically business finances, so on some level, it’s understandable.
However, bookkeeping and accounting are distinct areas of practice—with a few key overlapping responsibilities. Understanding the differences between these two fields, as well as the commonalities between them, can help your business’s financial strategy and ensure you keep your financial records accurately.
Let’s start the discussion with a high-level overview of bookkeeping and accounting, and what makes them different. Bookkeepers and accountants are both positions relevant to business finances, and in many cases, they work closely together. Both are responsible for tasks that play into the profitability, financial reporting, and overall financial health of the business.
As a general rule, bookkeepers are responsible for managing the day-to-day financial recording important to a business, while accountants take on more high-level responsibilities, like financial planning, strategizing, and advisory. We can also examine these differences in more granular detail, analyzing the typical job responsibilities of each role.
Bookkeepers are responsible for managing and recording the day-to-day financial exchanges within a business. For example, they might be responsible for entering new purchase orders or recording paid invoices using an accounting program. They may also reconcile bank statements at the end of the month, searching for errors and consolidating data. On a monthly basis, they can also create financial statements and certain types of support.
Good bookkeepers are capable of a wide variety of different finance-related tasks. They may submit purchase orders to vendors, send invoices to clients, take care of payroll for employees, and pay bills on time. As they get more experienced, bookkeepers can take on more significant and complex responsibilities, such as advising clients or employers about best practices or compliance standards. They can also take on the role of cash flow management and forecasting, ensuring cash flow remains positive in the business.
Most bookkeepers have a 2-year degree in accounting or higher, though this isn’t a requirement. Some bookkeepers get by with on-the-job training, and can become proficient in a year or two.
There are some limitations to a bookkeeper’s role, however. Bookkeepers aren’t certified by any external organization, and can’t perform independent audits or attestations. They usually don’t file tax returns, but may be able to in some circumstances.
Accountants tend to serve as a type of financial advisor for a business or individual. They’re responsible for preparing high-level financial reports and statements for internal use, as well as reports that are required by third parties—like banks (who might be doing due diligence in advance of a loan) or governmental agencies (who might be auditing your business). Accountants also take the financial data available to them and use it to interpret the financial health of the business; for example, they might note that cash flow is suffering, or that a certain department is spending more than they should. They might also analyze the profitability of the business and make recommendations for how the organization can run more efficiently from a financial perspective. When making a major financial decision, most savvy business owners will turn to an accountant for advice.
Accountants may also be responsible for planning for income taxes, especially for larger businesses. They may work to increase the number and value of deductions a company can take, or do what they can to make the tax preparation process quick and smooth. Accountants frequently take on a supervisory role as well, verifying that financial records are being kept accurately and completely.
Not all people in the accounting department are certified public accountants (CPAs), however. CPAs are accountants who have become formally certified with their state board of accountancy. Each state has different rules and restrictions for local CPAs, but no matter what, there will likely be minimum education and experience standards to meet. Most state boards also require CPAs to undergo continuing education—since tax laws and other rules and regulations are constantly evolving.
As you might have understood from reading the above sections, there is a bit of a gray area between bookkeeping and accounting. There are some responsibilities that could easily be handled by a bookkeeper, an accountant, or one of each working together.
For example, both bookkeepers and accountants are responsible for either entering financial records or overseeing those records. They can both create monthly financial reports, and ensure the accuracy and completeness of financial records. They can also make your taxes significantly easier.
On top of that, if you only hire an accountant, they may be able to take on all the roles of a bookkeeper, serving almost as a hybrid role. Similarly, if a bookkeeper has enough experience and familiarity with accounting, they may be able to provide significant financial advice to an interested business owner—even if they aren’t formally certified as a CPA.
It’s perhaps easiest to understand the roles of a bookkeeper and accountant by walking through the types of responsibilities each might face throughout a period of time.
For starters, a bookkeeper will create and send invoices, keep a log of incoming deposits, and match those transactions to ensure they’re being processed accurately. A bookkeeper may also keep track of purchase orders and vendor bills, ensuring timely payment. At the end of the month, a bookkeeper or an accountant may create a monthly financial report, analyze it for mistakes, and come up with a high-level analysis.
An accountant will usually be the one to make recommendations to leadership about how to respond to this report—such as cutting expenses or changing workflows to function more efficiently. Accountants will also focus on year-end strategies, and provide insights or advice when prompted. Accountants will be exclusively responsible for audits and other forms of official documentation.
It’s important to know that the roles of bookkeeping and accounting are constantly evolving, like most roles and responsibilities in businesses. Much of this evolution is driven by advancements in accounting and bookkeeping technology.
For example, new accounting and bookkeeping platforms have made logging financial transactions much simpler and more accessible. Point of sale (POS) systems and other advancements have automated a significant chunk of the average bookkeeper’s responsibilities; bookkeepers are no longer spending most of their days manually logging new income and expenses. In some areas, this has led to a decline in demand for bookkeepers, but in others, it has allowed bookkeepers to step into more supervisory and advisory functions.
In addition, the emergence of tools like these has forced both bookkeepers and accountants to be more adaptable. To better serve clients and employers, they must become more familiar with the latest tech platforms—and able to seamlessly adjust to new demands and responsibilities.
Does your business need a bookkeeper, an accountant, or both? That depends on many factors, including the size, industry, and financial scope of your business. At a minimum, it’s a good idea to have an accountant for advisory and tax preparation purposes. If you hire someone experienced enough, they may be able to make a recommendation for which other positions to fill. Due to recent advancements in accounting software, it may be possible to automate or simplify many bookkeeping responsibilities, so a full-time bookkeeper may not be strictly necessary for smaller businesses in addition to the accountant.
If you’re interested in improving your accounting efficiency or reducing your total costs, consider outsourcing your accounting. If you’re interested in learning more about our platform and how it can improve your bottom line, schedule a live demo of Taxfyle today!
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