Bookkeeping and accounting are similar in practice. Yet, many people tend to use the two respective occupations interchangeably. However, several key distinctions in their roles and required credentials set them apart. Therefore, choosing which career path to take requires careful consideration.
What is a Bookkeeper?
A bookkeeper records financial data for a person or business. They typically sort daily transactions into categories, reporting income and expenses. They may also help with payroll, monthly statement reconciliation, tax documents, and creating financial reports. However, their job mainly focuses on maintenance and organization.
There are technically no required credentials to call yourself a bookkeeper. However, most clients would prefer someone who has undergone training and received accreditation from the American Institute of Professional Bookkeepers or the National Association of Certified Public Bookkeepers. Plus, you can charge more when you back your skills and knowledge with certifications.
What is an Accountant?
An accountant analyzes the data compiled by a bookkeeper to determine the financial health of an organization or person. In addition, they can give financial advice, file taxes, and make forecasts with the records. There are several types of accountants, and their titles differ based on their job descriptions. For example, there are tax, audit, forensic, and full-service accountants. If you plan on opening a firm, you'll need accounting practice management software to deal with your workload appropriately.
Before you can call yourself an accountant, you'll need to acquire the proper credentials. The general credentials include a bachelor's degree in finance, accounting, or business administration from an accredited college. There are also several accounting certifications that you can obtain after college to expand your services. Accounting certifications all have different requirements and benefits – the three primary certifications are:
You can obtain a Certified Public Accountant (CPA) credential through your state by passing the Uniform CPA Exam. In addition, you'll need to keep yourself updated with tax laws and continuing education requirements to keep your certification. Many, but not all, accountants are CPAs, and you'll need this before you can start offering services to the public.
A Certified Internal Auditor (CIA) certification is mainly for those who wish to work in financial risk assessment, conduct internal audits, and ensure their client's compliance with the law.
A Chartered Financial Analyst (CFA) certification may be the hardest to obtain, but it's well worth the effort if you pass your examinations. You'll need this if you want to give investment advice and help your clients manage their financial portfolios.
How Bookkeepers and Accountants Work Together
Many people don't realize that bookkeepers and accountants often work in conjunction. The bookkeeper organizes financial data and creates reports to give to the accountant. Then, the accountant will analyze, audit, and provide financial advice to the client based on the data. A bookkeeper cannot be an accountant without obtaining the required credentials. However, an accountant can double as a bookkeeper, providing an all-in-one service.
What to Charge
Deciding what to charge can be tricky, especially if you're freelancing. It would be best to charge enough to make a living but not so much that you'll scare away potential clients. Remember that you can set a higher rate when you have the credentials to prove you've undergone adequate training and raise your rates as you gain experience.
There is a significant difference in the pay each profession receives. According to the Bureau of Labor Statistics, the median salary of an accountant was $73,560 in 2020, while the median wage of bookkeepers was $42,410. If you decide to open a firm, you will have more control over your wages, but you still need to be reasonable. On the other hand, if you work for someone else's practice, you'll have to take what they offer or negotiate your pay.
Which Path is Right for You?
Both bookkeepers and accountants have the opportunity to make a lot of money. So it all boils down to preference. Do you want to compile or analyze data? Do you like giving financial advice, or does it make you uncomfortable? If you prefer to organize data and create reports, bookkeeping may be an excellent path to choose. Conversely, accounting may be ideal if you want to take on more complex tasks.
You should also consider the amount of time and money you have for education. For example, are you willing to take the time to obtain a bachelor's degree, or would you instead take the shorter (and cheaper) route to go through bookkeeping training?
The requirements and duties of bookkeepers and accountants may seem similar, but there are several key differences that one must consider before choosing their career. First, there are more opportunities for advancement if you decide to be an accountant. However, you'll need to ensure you're constantly continuing your education to keep your licenses.