Frequently Asked Questions

What does a Bookkeeper do?

What is Accounts Receivable?

What is Accounts Payable?

What is Payroll?

What does an Accountant do?

What is a CPA?

What does a Tax Preparer do?

What is an Enrolled Agent?

What does a Bookkeeper do?

A bookkeeper is a person that handles Accounts Receivable, Accounts Payable, or Payroll. In smaller companies, the same person may perform all three tasks. In larger companies, each task is performed by a different person. In very large companies, there are often multiple people performing each task. The bookkeeper's job is usually to "keep the books" on a daily basis, and then hand that information off to the accountant on a monthly or quarterly basis.

Smaller companies often hire a contract bookkeeper to come in for a few hours each week, or at the end of the month, to do what's called "writeup services" -- basically entering all of that week's (or month's) transactions and reconciling the books in one fell swoop, rather than updating the books every single day.

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What is Accounts Receivable?

Accounts Receivable (A/R) refers to customer accounts and the funds that are due to be paid to the company. The company provides products or services to its customers and the company receives payment in exchange. A bookkeeper who does this task is often called an Accounts Receivable Clerk. The process usually consists of entering customer orders into the computer system, preparing invoices, sending them to customers, receiving payments, logging the payments into the computer system, and following up with customers who have overdue payments.

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What is Accounts Payable?

Accounts Payable (A/P) refers to vendor accounts and the funds that are due to be paid by the company. The company orders goods or services from other businesses (vendors) and the company then pays for those goods or services. A bookkeeper who does this task is often called an Accounts Payable Clerk. The process usually consists of entering purchase orders into the computer system, receiving bills and invoices and logging those into the system, paying those bills and logging the payment into the computer system, and following up with vendors regarding account adjustments, refunds, returns, etc.

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What is Payroll?

Payroll refers to the company's employee salaries, wages, bonuses, net pay, and deductions; the maintenance of all records pertaining to payroll and payroll taxes (Federal income tax withholding, Social Security, Federal unemployment tax, State and Local taxes); and the issuance of the actual payroll checks or electronic payments to the employees. A bookkeeper who does this task is often called a Payroll Clerk. The process usually consists of entering or verifying employee hours in the computer system, computing and recording the earnings owed to each employee, calculating payroll taxes and other deductions, generating the payroll checks or initiating the electronic payments, and keeping records of benefit deductions, sick leave and vacation pay, 401(k) and pension contributions, and other nontaxable wages.

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What does an Accountant do?

An accountant is the person who sets up the bookkeeping system, monitors it, and interprets the results. Accounting is more of an analytical process than bookkeeping, which is purely mathematical. The accounting process begins with designing a system that will capture the company's financial information in a useful manner without being overly burdensome to the bookkeeper. The accountant then monitors the system to ensure that it's yielding the desired information in the most efficient and useful manner. Finally, the accountant compiles the information on a monthly or quarterly basis, analyzes the information, prepares various reports called financial statement, and presents the financial statements to the business management in such a way that decisions can be made.

In smaller companies, bookkeeping and accounting may be handled by the same person. In larger businesses, one or more accountants typically supervise multiple bookkeepers. In very large companies there may be hundreds, possibly even thousands of accountants. One will be designated as the "Controller" who oversees the entire accounting and bookkeeping system.

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What is a CPA?

CPA stands for Certified Public Accountant, which is an accountant who has passed a series of tests in order to earn their certification, and must take continuing education classes yearly to retain it. The requirements to become a CPA are quite rigorous; it takes an accountant several years to gain their CPA license, and constant upkeep in order to retain it.

Hiring a CPA full-time may be cost-prohibitive for the average small business owner. CPAs are usually more expensive than regular accountants, and hiring a CPA for a bookkeeping position is definitely overkill. Many companies work with bookkeepers and accountants throughout the year and hand off their year-end records to their CPA for a final audit before the year's taxes are prepared.

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What does a Tax Preparer do?

Tax Preparers are individuals who prepare tax returns for individuals or small businesses. There is currently no special licensing or certification required to become a tax preparer, aside from passing the IRS's open-book exam, which was just instituted this year (2011). Previously, anyone could purchase tax preparation software and hang out a sign that said "Tax Preparer" and start getting paid to do other people's taxes.

When choosing a tax preparer, look for someone who has some other financial credentials and experience, such as bookkeeping or accounting.

Some accountants who specialize in tax preparation call themselves "tax accountants," which would indicate a greater degree of financial literacy beyond just buying software and hanging up a sign. However, be sure to ask about their background, since most states currently have no laws governing who can use the title "accountant."

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What is an Enrolled Agent?

An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals. "Enrolled" means they are licensed to practice by the federal government, and "Agent" means they are authorized to appear in the place of the taxpayer before the IRS. Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS.

The license is earned by either 1) passing a comprehensive examination which covers all aspects of the tax code, or 2) having worked at the IRS for five years in a position which regularly interpreted and applied the tax code and its regulations.

Hiring an EA to do your taxes may be cost-prohibitive for the average small business owner. EAs are usually more expensive than regular tax preparers or tax accountants, and the extra expense is usually not necessary for the average individual or small business. However, larger companies or those individuals and businesses with very complicated finances, who wish to take advantage of all the possible tax benefits and "loopholes" that are littered throughout the 17,000 of pages of tax code, may find it to their benefit to retain an Enrolled Agent.

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