1. Money
Jean   Murray

Bookkeeper? Accountant? CPA? What's the Difference?

By January 13, 2010

Follow me on:

I have been writing about business advisors this week, and it occurred to me that I have been throwing around the terms "bookkeeper," "accountant," and "CPA" as if they were synonyms.  They are not.  These three professionals are very different in their scope of work, the tasks they perform, and their licensing and professional status and their standing with the Internal Revenue Service.

Bookkeepers

A bookkeeper is someone who works for a company (either as an employee or a contractor) to keep the financial books.  Most bookkeepers these days use accounting software like QuickBooks for this task.  A bookkeeper is responsible for accurately recording transactions, including accounts receivable, accounts payable, inventory, and (sometimes) payroll and providing reports on a monthly, quarterly, and annual basis.

I have a bookkeeper for my consulting/writing business.  He makes payments for me, keeps track of what I owe on credit cards and other payables, and he gives me monthly reports.  He also pays my sales taxes and does my 1099s and 1096 form at the end of the year.  But he doesn't analyze the reports or give me tax advice.

Accountants

Accountants are a level up from bookkeepers. They can (but usually don't) perform bookkeeping functions, but usually they prepare detailed financial reports, perform audits of the books of public companies, and they may prepare reports for tax purposes.  But an accountant is classified by the IRS as an "unenrolled preparer," which means he or she has no standing with the IRS in the matter of signing tax returns or representing clients at  tax audits and other matters before the IRS.  Only CPAs, tax attorneys, and Enrolled Agents are able to represent a taxpayer before the IRS.

If you have an accountant prepare your business tax return, understand that this individual cannot legally sign your return and submit for you, nor can he or she assist you with an audit or go to an audit for you or to tax court.

Certified Public Accountants (CPAs)

A CPA has an additional level of credibility and expertise.  A CPA is an accountant who has passed certain examinations and met all other statutory and licensing requirements of a state to be certified by that state. In addition to preparing and reviewing financial statements, CPAs also prepare tax returns for businesses and individuals, sign tax returns, and represent taxpayers before the IRS for audits and other matters.  The American Institute of Certified Public Accountants (AICPA) is the national professional association for CPAs.

Which Accounting Professional Do You Need?

Every company, even one as small as mine, needs someone to keep track of the books.  Before I had a bookkeeper, I did it myself and (even with a financial background), I did a terrible job of it.  Whether you hire an employee or a contractor, you will need a bookkeeper.  That bookkeeper might work for an accountant or a CPA.

You also must have someone to help you review your financial reports and help you make decisions on finances and taxes.  I can't tell you that you must get a CPA, but as I mentioned above, an accountant who is not a licensed practicing CPA cannot sign your business tax return or represent you before the IRS.  To me, this is an important distinction, which is why I have a CPA who helps me review my books and who gives me tax advice, as well as preparing and submitting my business and personal tax returns online.

For More Information

Finding Help with Bookkeeping and Accounting Tasks

All About CPAs, by a CPA

Image: Headhunters/Getty Images.

Comments
January 13, 2010 at 11:01 am
(1) Kirk Ward says:

It seems you overlooked the only one of the bunch that is issued a Federal credential (or license). How about Enrolled Agents?

EA’s are the only professionals tested on their knowledge of tax law. CPA’s are tested on their knowledge of the accounting requirements that big corporations have to adhere to. There are NO tax law questions on the CPA exam.

It would help if folks with the type or breadth of exposure you have kept them in mind. Just because the AICPA has ten times more members, and a huge marketing and lobbying budget doesn’t mean they know diddley about taxes. This is a good time of year to remember that.

January 13, 2010 at 3:13 pm
(2) Neil "The Tax DudeŽ" Johnson says:

I think any prospective client would have a hard time getting 20 names and contact information from any reputable professional to check references. Most of us do have privacy policies which would prohibit us from doing this.

January 14, 2010 at 10:57 am
(3) Kirk Ward says:

I don’t think you can get any names for references. IRS regs specifically prohibit the giving out of names, without a signed consent form acquired “in advance” of the tax engagement, and specifically authorizing the use of the name for that purpose.

Lot of hoops to jump through, and a big, big, risk if you don’t. when I were in practice, I never gave references. Hated that I couldn’t, but I didn’t. I had to protect my clients privacy. It was required then, and the law is tougher now.

May 13, 2011 at 7:18 pm
(4) Rick Dean says:

There are a lot of fake CPAs out there. They introduce themselves as a CPA,without no license, no required education, no nothing. They even advertise, as a CPA, in local newspapers with no fear of being noticed by Authority. Because the Secretary of State that should protect the rights of real CPAs does not do nothing. Everybody knowing no police will care, who’s going to keep the traffic signals?
Secretary has a webpage to report fake CPAs. But if somebody tries to do it, she has to write down her name and number. Secretary goes You may be contacted by the board investigator….. hearing before the board…….. During these processes, her identitiy easily gets exposed to others, including the fake CPAs. Why an innocent fee-paying real CPAs has to risk any chance to be retaliated by law-ridiculing fake CPAs? It’s definitely Secretary’s responsibility!
Secretary has another webpage to verify if somebody has a license. however, people out there do not even know if that kind of checking device exists.

Secretary can make a rule that requires every CPA put her CPA certificate where she works, and make sure, like by newpaper ad, consumers be informed there is such a rule.Main purpose of this is to educate accounting-service consumers to tell the fake from the real. when a consumer goes to an accounting office not to see the certificate, he will notice the self-designated cpa is not real. Secretary could do something only when he/she is willing to do her own job. Just do it!

January 2, 2013 at 6:43 pm
(5) Deb Stone says:

I am not a CPA; however I have a ptin and I do sign Sales Tax forms and Income Tax forms.

I am a ptin user who is studing to test as an enrolled agent.

I would like to know where it states by the IRS that only CPA’s can sign a tax form.

I believe that the only thing that CPA can do that an accountant cannot do is a sign a financial audit.

March 11, 2013 at 1:55 pm
(6) Rob says:

EA’s are a joke when it comes to corp & business taxes. When you need sound tax advise on these returns, you definitely need a CPA. EA’s don’t need any schooling and any monkey can pass an EA exam. They are really unnecessary. If you need tax law knowledge, go to an attorney; if you need practice tax advise, go to a CPA; if you want to be charged triple for H&R block quality work, go to an EA.

January 10, 2014 at 10:22 am
(7) Karen says:

I worked for a CPA for 7 years, and am now working for an Accountant with a degree (AA). My old boss had a stroke and my new boss bought his client list and hired me. My experience with both makes me believe that you don’t really know what you are talking about. My new boss is an Enrolled Agent (EA), Licensed Tax Consultant (LTC), and a RTRP. The only thing my old boss could do that my new boss cannot is certify a financial statement, and my new boss is certified for every state. She is also more knowledgeable on tax law, and less expensive.

January 10, 2014 at 12:06 pm
(8) biztaxlaw says:

The designation of “accountant” does not grant someone the ability to prepare and sign a tax return for someone else, according to the IRS. BUT, if this accountant is a Certified Public Accountant, Enrolled Agent, or a Registered Tax Return Preparer, he or she can sign a tax return and represent a taxpayer before the IRS.
You are correct that an “accountant” who is not a CPA cannot audit a company and certify a financial statement.

April 18, 2014 at 5:28 pm
(9) Jack says:

A registered tax preparer CAN’T represent a taxpayer before the IRS if he / she is not an EA, CPA, or tax attorney.

Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.