​What is the difference between a Bookkeeper, an Accountant, and a CPA?

There are many different types of financial support available to entrepreneurs, and different people with different skill sets you can hire.

In this section, we'll focus on the difference between bookkeepers, accountants, and CPAs. It's important to know the differences between the three, so you can not only know what to expect from each one, but also know which one (or ones) you need right now.

These are the three types of financial professionals most entrepreneurs hire, listed by level of support you receive and the investment you make when you hire them.

What is a Bookkeeper? Simply put, a bookkeeper keeps the books! Bookkeepers handle data entry, match and verify transactions (to the best of their ability). They also often take on tasks tasks such as invoicing, payroll, and supplier purchases.

Bookkeepers may or may not have formal accounting education, and frequently they learn their skills "on the job." This can get a little sticky sometimes, because bookkeepers may have limited taxation or relational knowledge, and sometimes pick up poor skills in their "on the job" training.

Typically a bookkeeper will give you reactive information only, and they very rarely work on a proactive basis. You'll learn more about these differences as we move through this course.

What is an Accountant? (the sweet spot) Accountants sometimes perform bookkeeping tasks. But they also perform tasks such as cash flow projections, budget development, tax advice, and financial statement preparation. Accountants also ensure businesses follow all financial guidelines and regulations.

Accountants should have a formal accounting education, training and experience that prepares them to handle more complex financial tasks and conversations. They cannot represent you in a case if you were to need representation with the IRS, but they may be able to file taxes.

An accountant will work alongside you to provide proactive information. Cash flow, budgets, tax consulting are all proactive actions within the business.

What is a CPA? A certified public accountant (CPA) is an accountant who passes the Certified Public Accountant Exam and usually focus on filing taxes. They can provide valuable insight into tax planning, navigating the every-changing government financial regulations, and budgeting. CPAs can also present organizations during interactions with the IRS.

A CPA can be both proactive and reactive. If you see your CPA once a year to file taxes, this is a reactive relationship. If you schedule frequent meetings throughout the year to discuss and explore tax strategies, this is a proactive relationship.

Some important notes on hiring any of the above:

Hiring a Bookkeeper or an Accountant who offers bookkeeping services is your first and best line of defense when it comes to building out your financial foundation.

If you hire a CPA, they will file your information based on the data received. It is not their job to verify if its correct, only if it follows GAAP (Generally Accepted Accounting Principles). This means you need to ensure you are providing your CPA with accurate data to start with. (How to provide accurate data is something we'll be covering in detail in this course.)

Its important that your bookkeeper or accountant is not the same person filing your taxes. This is for the purpose of internal controls, something we'll be covering later in this course.

I am going to use the term bookkeeper/accountant interchangeably during this training.

Lesson Summary

Bookkeeping, accounting and CPA services all provide financial support to entrepreneurs. Bookkeepers typically handle data entry, invoicing, payroll and purchases, but may have limited tax or other knowledge. Accountants typically perform more complex tasks such as cash flow projections, budget development, financial statement preparation and tax advice, and can offer both reactive and proactive advice. A CPA focuses mainly on filing taxes, can provide valuable insight into tax planning and regulations, and can represent an organization in interactions with the IRS. When hiring financial experts, entrepreneurs should ensure that the bookkeeper/accountant and the CPA are not the same person for the purpose of internal controls.

• Bookkeeper - data entry, invoicing, payroll and purchases, limited tax knowledge
• Accountant - cash flow projections, budget development, financial statement preparation, proactive and reactive advice
• CPA - filing taxes, tax planning, regulations, representation in interactions with the IRS
• Internal controls - bookkeeper/accountant and CPA should be different people