Learning Accounting and Bookkeeping Basics

Am I an Accountant or a Bookkeeper? What is the difference?

This is a common question I hear from individuals performing day-to-day financial services for a company.

Most people, even accountants, don't know the answer to this question.
And, in most cases the answer doesn't matter. But, in those cases where someone wants to be technically correct the answer lies in what services a person performs. If a person is doing bookkeeping, they are a bookkeeper. If they are doing accounting, they are an accountant.

What is Bookkeeping?

There are eight steps to the bookkeeping cycle. A bookkeeper is a person that performs one or more of these steps or sometimes called AAT (accounting technicians). In large companies, for instance, the bookkeeping cycle might be divided into departments such as Accounts Receivable, Accounts Payable, or Payroll. While most often these people are referred to as "clerks", they might also be considered bookkeepers as they are "keeping the books" for a company. In small companies, the bookkeeper may perform the entire bookkeeping process, or might just enter data to give to the "accountant".

All bookkeeping steps are mechanical in nature. Bookkeeping is a regimented process usually occurring in monthly cycles consisting of entering transactions into the journals, making adjustments, and preparing reports. The Accounts Receivable Clerk may be assigned to enter all sales on account, and all payments from the customers. The Accounts Payable Clerk's responsibility would be to enter purchase orders and checks. Again, in a small company, both duties may be performed by the same person.

The full-charge bookkeeper is someone who can do it all - including compiling the data into the General Ledger and preparing financial statements.

What is Accounting?

Someone has to set up the bookkeeping system, monitor it, and interpret the results. These processes are called "Accounting." The accounting process is much less mechanical and more subjective. It begins with designing a system that will benefit the business, by capturing the financial information in a useful manner without being overly burdensome to the bookkeeper. Once set up, the accountant monitors the system to ensure it's doing what it's supposed to do. And finally, on a monthly basis usually, the accountant presents the financial statements to the business management in such a way that decisions can be made.

Since accounting requires an understanding of the bookkeeping process, accountants typically supervise the bookkeepers. In a large corporation there may be several, possibly even thousands of accountants. One will be designated as the "Controller" who oversees the entire accounting and bookkeeping system.

In a small business, one person, often a freelancer (a contract accountant or full charge bookkeeper) will perform all the phases of accounting and bookkeeping for a company. Since "Accountant" is the more prestigious title, most small business jack-of-all-trades call themselves an "Accountant".

It merits some note that a few states actually regulate the use of the title "Accountant". In these states, the "Accountant" title is reserved for CPA's only. This does not necessarily coincide with the definition of an accountant since most CPA's don't perform the role of an "Accountant" as described above and many people that perform the accountant's roles are not CPA's. Nevertheless the laws define it as such.

Universal's course trains in bookkeeping and accounting. The first module emphasizes the bookkeeping process, although it does address the proper setup of the accounting system. Modules two and three include some bookkeeping practice, but emphasize the set up and interpretation of the accounting process.

Therefore, most of our graduates, in states that permit use of such a title, refer to themselves as "Accountants".

What about Tax Preparers?

Although I often hear tax preparers being called Accountants, technically speaking they are not. In the early 1900s accountants usually filled out the relatively simple forms as one of their duties. Today, with the tax preparation industry becoming a specialty all its own and the tax laws becoming increasingly complex, tax preparation is a totally different field populated by thousands of individuals that have never performed bookkeeping or accounting. Most are educated individuals who know how to organize tax data and how to enter it on the tax forms. Their title is "Tax Preparer".

Of course, there are those, including a fraction of CPA's, who do perform all three tasks. Again, because "Accountant" is the most recognized title, it's the one of choice by most such professionals..

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