Bookkeeper vs accountant: which one you need

A bookkeeper records what happens in your business day to day. An accountant uses those records to produce accounts, file tax returns and advise you. Many small businesses need both, at different times or to different degrees. Hiring the right one for each job keeps costs down, because an accountant's time is usually charged at a higher rate than a bookkeeper's. This is general information, not financial or tax advice.

What a bookkeeper does

A bookkeeper keeps your financial records accurate and up to date. Typical tasks include:

• Recording sales and purchases in your accounting software.
• Matching bank transactions to invoices and receipts (bank reconciliation).
• Raising invoices and chasing unpaid ones.
• Paying suppliers and tracking what you owe.
• Running payroll, if agreed.
• Preparing sales tax returns in some cases, such as VAT in the UK or the business activity statement (BAS) in Australia.
• Producing regular reports, such as a monthly profit and loss summary.

Bookkeeping is ongoing. Most businesses that use a bookkeeper have them work weekly, monthly or quarterly, depending on how many transactions there are.

What an accountant does

An accountant works at a higher level and usually less often. Typical tasks include:

• Preparing year-end accounts from the bookkeeping records.
• Preparing and filing business and personal tax returns.
• Advising on tax planning, business structure and how to pay yourself.
• Dealing with the tax authority on your behalf, including enquiries and audits.
• Forecasting, budgeting and advice when you are raising finance or selling the business.
• Checking the bookkeeping and correcting errors before anything is filed.

For more detail, see hiring a small business accountant.

Qualifications and regulation

United Kingdom

Neither "bookkeeper" nor "accountant" is a protected title in the UK. Bookkeepers often hold qualifications from the Institute of Certified Bookkeepers (ICB), the International Association of Book-keepers (IAB) or AAT. Accountants may be members of ICAEW, ICAS, ACCA, CIMA or AAT. Businesses offering bookkeeping or accountancy services to others must be supervised for anti-money laundering purposes, either by a professional body or by HMRC, so ask who supervises them.

United States

Bookkeepers are not licensed, though voluntary certifications exist from bookkeeping associations. A Certified Public Accountant (CPA) is licensed by a state board of accountancy, and an enrolled agent is licensed by the IRS for tax work. Anyone paid to prepare federal returns needs a PTIN.

Canada

Bookkeepers are not licensed, and voluntary bookkeeping certifications exist. Chartered Professional Accountants (CPAs) are regulated by the provincial and territorial CPA bodies.

Australia

Australia is stricter. A bookkeeper who provides BAS services for a fee, such as preparing or lodging business activity statements or advising on GST in that context, must be a registered BAS agent with the Tax Practitioners Board (TPB). Preparing income tax returns for a fee requires registration as a tax agent. Check the TPB register for either.

When you need a bookkeeper

• You are spending hours each month on receipts, invoices and bank matching, and that time would be better spent on the business.
• Your records are behind, and you only catch up when the tax deadline approaches.
• You are registered for VAT or GST and file returns regularly.
• You have employees and need payroll run reliably.
• You want up-to-date figures to make decisions, not just a picture once a year.

Some owners do the bookkeeping themselves using good accounting software and bank feeds. That works well if you are disciplined and transactions are few. A bookkeeper becomes useful when the volume grows or when keeping up slips.

When you need an accountant

• You run a limited company or corporation and must file annual accounts and a company tax return.
• Your tax position is complicated, for example multiple income sources, property, investments, or income from more than one country.
• You are deciding whether to incorporate, register for sales tax, or change how you pay yourself.
• You have received a letter or enquiry from the tax authority.
• You need accounts for a lender, investor or buyer.

Many sole traders with simple affairs only need an accountant once a year, for their personal return. Our guide to getting help with a tax return covers that case.

How bookkeepers and accountants work together

The usual pattern is that the bookkeeper keeps the records in shared accounting software through the year, and the accountant reviews them, makes year-end adjustments, prepares the accounts and files the returns. Both can log in to the same software, so there is no need to send spreadsheets back and forth.

A few points make the arrangement smoother:

Some accounting firms offer both services under one roof. That can be simpler, though you may pay accountant rates for work a separate bookkeeper could do. Others will recommend a bookkeeper they trust. Either way, ask who will actually be doing the bookkeeping, and how errors are caught.

Questions to ask either one

• What qualifications or registration do you hold, and where can I check them?
• Which accounting software do you use?
• How often will you work on my records, and how will you report to me?
• Do you carry professional indemnity insurance?
• Who supervises you for anti-money laundering (UK) or which register are you on (Australia)?
• Have you worked alongside an accountant or bookkeeper before, and how did you split the work?
• How do you charge, and what is not included?

For how fees are usually structured, see how accountants charge.